Transcript Debt Relief - University of Illinois at Urbana–Champaign

DEBT RELIEF
Nicholas Dossett & Rachel Miller
November 20th, 2013
What is Debt Relief?
From Google: A partial or total remission of
debts, especially those owed by developing
countries to external creditors.
What does this mean?
4 International Institutions
The World Bank Group
The International Monetary Fund
The United Nations
The African Development Fund
2 Major Initiatives
The Heavily Indebted Poor Countries Initiative
(HIPC)
The Multilateral Debt Relief Initiative
(MDRI)
The World Bank and IMF
• Bretton Woods Institutions
• twin intergovernmental pillars
• supporting the structure of economic and financial order
How are they different?
• World Bank → a development institution
• IMF → cooperative institution, maintains system of payments and receipts
The World Bank
Activities:
• Loans, Credits, & Grants
• Supporting investments in:
• Education
• Health
• Administration
• Infrastructure
• Development
• Agriculture
• Environmental & Natural Resource Management
• Co-financing
Made up of 5 institutions:
1. The International Bank for Reconstruction and Development (IBRD)
2. The International Development Association (IDA)
3. The International Finance Corporation (IFC)
4. The Multilateral Investment Guarantee Agency (MIGA)
5. The International Centre for Settlement of Investment Disputes (ICSID)
The IMF
Fundamental mission: to ensure stability in the international
system
• an organization of 188 countries
Goals:
• foster global monetary cooperation
• secure financial stability
• facilitate international trade
• promote high employment and sustainable economic growth
• reduce poverty around the world
Three Activities:
1. Surveillance: ways keeping track of the global economy and the
economies of member countries
2. Technical Assistance: giving practical help to members
3. Lending: to countries with balance of payments difficulties
The United Nations
• founded in 1945, after WWII
4 Main Functions:
• Keep peace throughout the world
• Develop friendly relations among nations
• Help nations work together to improve the lives of poor people,
conquer hunger, disease and illiteracy, and encourage respect
other’s rights and freedoms
• To be a center for harmonizing the actions of nations to achieve
these goals
The AfDF
The African Development Fund (AfDF) is the concessional window of
the African Development Bank (AfDB) Group.
Objective: to help reduce the debt burden of eligible Regional
Member Countries (RMCs) & free up resources for poverty reduction
and development
Functions:
• Promotion of economic and social development
• 40 least developed African countries
• Concessional funding and technical assistance
• Participant in the internationally coordinated debt relief programs
• Enhanced HIPC Initiative & MDRI
The HIPC Initiative
Launched in 1996 by International Development Association (IDA) and
IMF
•Comprehensive approach to debt reduction
•ensure that no poor country faces a debt burden it cannot manage
•provide a fresh start to countries with a foreign debt
•voluntary provision of debt relief by all creditors
• multilateral, bilateral, or commercial
Enhanced in 1999 as an outcome of review by IDA and the IMF
• debt-burden thresholds adjusted downward
• broader group of countries
• larger volumes of debt relief
• earlier assistance
• “floating completion point”
The UN Millennium Development Goals
• Agreed to by all the world’s countries and all the
world’s leading development institutions
• Target date of 2015
1.
2.
3.
4.
5.
6.
7.
8.
Eradicate extreme poverty and hunger
Improve maternal health
Achieve universal primary education
Combat HIV/AIDS, malaria and other diseases
Promote gender equality and empower women
Ensure environmental sustainability
Reduce child mortality
Develop a global partnership for development
Poverty Reduction Strategy Papers
(PRSP)
•
•
•
•
•
Launched September 1999 by the World Bank and the IMF
Officially, MDG and PRSP objectives are not linked
MDGs were conceived within the UN system
PRSP was a Bretton Woods (IMF and World Bank) initiative
World Bank reports annually on progress towards MDGs
The MDRI
• A supplement to the HIPC
• Proposed by the G-8 in 2005
• Provides for 100 percent relief on eligible debt from institutions
• The IMF
• The IDA of the World Bank
• The AfDF
• Intended to help advance the MDGs
• Recipient countries must have met the completion point under the
HIPC Initiative
HIPC Initiative Requirements
First step: Decision point
Four conditions
1. Eligible to borrow from the IDA & the IMF’s Poverty Reduction and Growth Trust
2. Face an unsustainable debt burden
3. Established a track record of reform and sound policies
4. developed Poverty Reduction Strategy Paper through a broad-based participatory process
When a country reaches its decision point it may immediately begin receiving interim debt
relief
Second Step: Completion Point
3 Conditions
1. Establish a further track record of good performance
2. Implement satisfactorily key reforms agreed upon at the decision point
3. Adopt and implement its PRSP for at least 1 year
When a country reaches its completion point it is allowed to receive its full debt relief
committed at the decision point
MDRI Requirements
•
•
•
•
•
Reach the completion point under the Enhanced HIPC Initiative
Per capita income below $380
Outstanding debt to the Fund at end-2004
Current on obligations to IMF
Demonstrate satisfactory performance in Macroeconomic policies &
implementation of a poverty reduction strategy
HIPC and MDRI Results
2005
• HIPC relief to 29 post-decision countries = $41.7 Billion (NPV)
• $20 Billion corresponds to completion point countries
2006
• 40 Countries qualified for HIPC
• 29 reached decision point
• 30 countries received $45.8 Billion in MDRI relief
2010
• $76.4 Billion in HIPC relief committed to 36 countries
2011
• Poverty reduction expenditures increased from 6.3 % of GDP in 2001
to 8.8% of GDP in the 36 HIPC Countries
2012
• Debt-service payment dropped from 2.8% of GDP in 2001 to 1.3% of GDP
• Poverty reduction expenditures increased to 10.1% of GDP
2013
• 36 of 39 HIPC eligible countries had reached “completion point” &
have received debt relief under HIPC and MDRI
Future •
helping low-income countries achieve their development goals
• without creating future debt problems,
• keeping countries that have received debt relief on a sustainable track.
Debt Relief in Burkina Faso
•
•
•
•
•
•
•
•
•
•
•
•
Burkina Faso remains committed to the structural adjustment program it launched in 1991
1997 became the 2nd African Country & 3rd worldwide to benefit from HIPC
2000 (Feb. ) Reached decision point
Set to receive $115 Million in 2000 (contingent)
Expected to reach completion point in 2001 by fulfilling following conditions
1. Consolidation of macroeconomic progress (PRGF)
2. Implementation of policy reforms in the medium-term policy framework
3. Prepare full PRSP
4. Implement PRSP for at least 1 year
Qualified for US$398 Million- a 50% reduction in outstanding stock of debt
2002 completed enhanced HIPC criteria
2002 exceptional debt relief, or "topping-up” committed
• additional US$129 million (NPV)
• to mitigate results of exogenous shocks to its exports
Should have finalized its second PRSP covering the years 2004–2006, implementation
period was extended into 2007/2008
2005 qualified for debt relief under the MDRI
2009 annual per capita assistance was estimated at $81
Under the Poverty Reduction and Growth Facility (PRGF) IMF noted that performance
criteria were (completely or mostly) met in 2010
Debt Relief in Burkina Faso
•
•
•
•
Debt relief under the enhanced HIPC Initiative US$195 million (NPV)
In addition to US$229 million ( NPV) under the original HIPC framework in July 2000
In 2010 $638 million had been delivered under the MDRI
Total nominal debt service provided under the HIPC Initiative is about US$930 million
Burkina Faso is recognized as a good development performer and partner
A Critique of Debt Relief Programs
General
• Foreign aid would benefit poor countries more than debt relief
• Many countries receiving debt relief lack the ability to make a good use of it
• Poor infrastructure
• Emotional side of the debate often clouds the efficiency of a project
• Aid would be better put to use building up what a country lacks rather than forgiving
debts
• Un/anti-democratic institutions
• Lack of accountability
Burkina Faso, Specific
• Liberalization of the economy required with programs marginalizing local artisans
and workers
• Process of liberalization has been uneven→ Inequality, Social Stratification
• industries are vulnerable to competition from imported goods
Questions for Further Study
1. Burkina Faso is said to have been very successful with the formal debt
relief programs. Do the people of Burkina Faso feel like they have been
successful or that the debt relief programs were/are helpful?
2. How have the working people been affected by economic liberalization?
3. More Questions?
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
http://www.imf.org/external/pubs/ft/exrp/differ/differ.htm
http://criticalfinancial.com/wp-content/uploads/bretton-woods-sign.jpg
http://blogs.denverpost.com/thespot/files/2012/03/United-Nations.jpg
http://www.afdb.org/en/about-us/african-development-fund-adf/debt-relief-initiatives/
http://www.afdb.org/fileadmin/assets/afdb/img/logo_print.gif
http://www.worldbank.org/mdgs/global_partnership.html
http://siteresources.worldbank.org/AFRICAEXT/Images/hipcmap.gif
http://www.un.org/millenniumgoals/
http://www.imf.org/external/np/exr/facts/hipc.htm
http://siteresources.worldbank.org/NEWS/Images/prsplogo-187.gif
http://vi.unctad.org/debt/debt/m3/Section%20I(ii)_clip_image002.jpg
http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20040942~menuPK:34
480~pagePK:34370~theSitePK:4607,00.html
http://www.who.int/immunization_financing/analyses/debt_relief/debt_relief_map_big.jpg
"Burkina Faso." Background Notes On Countries Of The World: Burkina Faso(2011):
1. Business Source Complete. Web. 19 Nov. 2013.
http://www.afdb.org/fileadmin/uploads/afdb/Documents/FinancialInformation/Burkina%20Faso%20%20Decision%20Point%20Document%20HIPC%20Framework.pdf
http://www.imf.org/external/np/sec/pr/2002/pr0221.htm
http://www.imf.org/external/np/pp/eng/2005/bfa.pdf
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2079rank.html
http://www.gsb.stanford.edu/news/research/econ_henry_g8debtrelief.shtml
Casse, Thorkil, and Stig Jensen. "Do We Understand The Linkages Between Economic
Growth, Poverty Targets And Poverty Reduction?." Review Of African Political Economy
36.122 (2009): 539-553. Business Source Complete. Web. 19 Nov. 2013.
Harsch, Ernest. "Burkina Faso In The Winds Of Liberalisation." Review Of African Political
Economy 25.78 (1998): 625. Business Source Complete. Web. 19 Nov. 2013.