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JOINT COMMITTEE ON FOREIGN AFFAIRSREPORT
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DEPUTIES |
SENATORS |
AHERN, NOEL |
DALY, BRENDAN |
BARRETT, SEÁN |
LANIGAN, MICK |
BREE, DECLAN |
MALONEY, SEÁN |
BRISCOE, BEN |
NORRIS, DAVID |
COLLINS, GERARD |
TAYLOR-QUINN, MADELEINE |
CONNOR, JOHN |
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COX, PAT |
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DAVERN, NOEL |
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DE ROSSA, PROINSIAS |
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DURKAN, BERNARD |
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ELLIS, JOHN |
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FERRIS, MICHAEL |
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GALLAGHER, PAT |
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HOGAN, PHILIP |
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LAWLOR, LIAM |
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LENIHAN, BRIAN |
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LOWRY, MICHAEL |
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MCDOWELL, MICHAEL |
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MORLEY, P.J. |
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O’HANLON, RORY |
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O’KEEFFE, JIM |
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OWEN, NORA |
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PENROSE, WILLIE |
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RYAN, EOIN |
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RYAN, SEÁN |
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Ahern, Noel
Connor, John
De Rossa, Prionsias
Durkan, Bernard
Ferris, Michael
Gallagher, Pat (Laois-Offaly)
Lanigan, Michael
McDowell, Michael
Norris, David
O’Hanlon, Rory
Ryan, Eoin
Ryan, Sean
Taylor-Quinn, Madeline
1.The Third World debt continues to be a major barrier to positive development and self sufficiency across Southern countries. This report analyses the problems cased by debt and puts forward recommendations for action which Ireland can pursue as a member of the IMF and World Bank over the coming year.
2.The Third World Debt now stands at $1.7 trillion, 60% higher than at the start of the crisis in the early 1980’s. Much of what is due cannot be repaid and accumulates as arrears.
3.Following the rise in oil prices in 1973, developing countries incurred heavy borrowings to pay for oil imports. Interest rates rose dramatically and this led to a situation in which many countries found it difficult to service their debts. Initially, the international response was aimed at averting default by debtors which might have undermined the world financial system.
4.In time, a more structured approach emerged, known as the International Debt Strategy with developing countries being obliged to adopt structural adjustment policies which involved increases in export earnings, a reduction in imports to save foreign exchange and a reduction in public spending. In return, they received a financial package which included debt rescheduling and new loans.
5.In low-income countries, particularly in Africa, most debt is official, i.e. owed to Governments and international financial institutions (IMF, World Bank, etc.). In middle-income countries (much of Latin America) debt is owed mainly to private banks in addition to the international financial institutions.
6.In 1989, US Treasury Secretary Nicholas Brady launched a major initiative in regard to the debts of middle-income countries with commercial loans. Under this initiative, the IMF and World Bank gave backing to debt and debt service reduction programmes negotiated by debtor countries with commercial banks, in return for agreements to undertake certain economic reforms e.g. public expenditure reduction or increase in taxes. This facility has been used heavily, in Latin America (Mexico, Venezuela, Brazil, Argentina) and by some Asian countries (Philippines).
7.The Economic Summit of Industrialised Countries (G7) held in Toronto in 1988 agreed on a set of rescheduling measures known as the “Toronto Terms” used by the so-called “Paris Club” (an informal group of government officials representing western creditor countries) to provide debt relief for the poorest developing countries. These terms include reduced interest, very long repayment periods or partial write-offs of debt service obligations, or a combination of these options. In December 1991, a set of new concessions for low-income countries, expanding on these terms, was adopted. (These are known as “enhanced Toronto Terms”).
8.A proposal known as the “Trinidad Terms” was advanced in 1990 by the then British Chancellor of the Exchequer, Mr. John Major, at a meeting in Trinidad of the Commonwealth countries. These proposals would, among other things, write off two-thirds of the debt of low income developing countries. This proposal has not yet been accepted.
9.Significant progress under the International Debt Strategy has been made towards relieving the debt crisis of the middle-income countries. Low-income countries, on the other hand, continue to face serious debt burden problems. While these countries have secured extensive rescheduling of official debt, together with forgiveness of ODA debts in some cases, their problems remain acute, in particular their obligations to the International Development Agency, the soft-loan side of the World Bank. In many cases their low level of export earnings are insufficient even to service their debts.
10.For many developing countries the burden of their debt is attributed to the “debt overhang”, that is, a high ratio of debt to GDP. As a result of the burden of the international debt, many developing countries are experiencing poor investment and growth performance. A high ratio of debt to GDP discourages investments and affects output negatively, because most of the revenues generated by production and exports are used to repay current debt obligations.
11.The figures are instructive. It is calculated that in 1990 the export of real resources from Africa alone by way of debt service came to about 8% of GNP and 28% of export earnings. The total volume of Sub-Saharan African debt has risen to over 170 billion dollars. Overall the total indebtedness of developing countries in 1992 is though to have been about 1,703 billion dollars.
12.Efforts to repay the debt result in significant transfers of resources from Southern to Northern countries. The reality of these transfers challenges the widely held Northern perception that the flow of resources is going South as aid.
*Total Western aid to the Third World: $57 bn (1991)
*Debt repayments (interest and capital): $143 bn (1991)
It may be useful to look at the situation facing one of Ireland’s ODA partners. Zambia received $600 million in aid from Northern countries in 1991, $3 million of which came from Ireland. Zambia returned $500 million in debt repayments thus cancelling out 80% of the value of the aid.
13.The pressure to prioritise debt repayment has had devastating effects on the lives of people across Southern countries and their environment, particularly in Sub-Saharan Africa.
*Third World Governments spend 50% more on debt servicing than on health and education combined.
*Debt servicing takes priority over food security. The best land is used for cash crops for export. In Sudan, 60% of agricultural labour is engaged in producing export crops.
*The most indebted countries are those which are deforesting fastest to increase exports and earn the necessary foreign exchange for debt repayment.
*A half a million children die each year as a result of the debt crisis (UNICEF)
*Women in developing countries pay the highest price for this debt crisis - in the labour force, on the farm, in the home, and in the community - paying with their time, their energy, and their health.
14.The IMF and World Bank are involved in the debt crisis on two levels:
a)as creditors alongside Northern Governments, commercial banks, regional development banks
b)as managers of the debt repayment process.
This section focuses on the implications of the second role. Since the threat of default on debt payments in the early 80s, the IMF’s role - supported by the World Bank - has been to adopt measures to ensure that debt servicing continues. To achieve this, debtor countries have been required to restructure their economies to prioritise production for export in order to increase foreign exchange earnings and cut government expenditure. Sacrificed to this aim have been the welfare, health, education and, indeed, the future of Southern peoples.
15.Debtor countries have been forced to adopt these policies in order to be eligible for new loans or for rescheduling of existing loans. Northern creditors require a country to agree a ‘structural adjustment programme’ with the IMF before negotiations can take place on old or new loans. These programmes have contributed significantly to the increase in poverty and environmental degradation already highlighted. Hard-won gains in health and education have been reversed; living standards are in decline; poverty is increasing, and the crisis is set to deepen.
16.A further serious concern about these financial institutions is the lack of openness and accountability in the way decisions are made and implemented. Citizens within many Third World democracies have no say in the policies which will substantially impact on their lives. There is now overwhelming evidence that structural adjustment programmes have failed to create a platform for sustainable recovery, and have not addressed the central challenge of alleviating poverty.
17.The World Bank has recently recognised that structural adjustment programmes are having negative social effects. As a result, “Social Dimensions of Adjustment” (SDA’s) have been introduced in recent programmes. These are designed to protect the poorest members of a community from the harshest elements of the proposed changes, such as unemployment and increased charges for health care and education. However, SDA measures suffer from inappropriate design, inadequate funding and poor implementation. Due to the bureaucratic and complex nature of current SDAs, uptake of these compensatory payments has been grossly inadequate. This initiative has failed to meet its objective to provide a safety net.
18.While it is now widely accepted that significant debt relief is necessary to tackle the debt problem - in particular for the poorest, severely indebted countries - none of the schemes introduced to date have tackled the problem effectively. The debt continues to mount. According to the World Bank, the debt increased by 6.5% in 1992/1993.
19.The main proposal on the table at the moment is the Trinidad Terms which would deal with official government to government loans and would:
a)reduce the debt stock of eligible countries by 2/3
b)reschedule the remaining third of the debt over 25 years.
Although these terms represent a significant advance as they propose reducing the debt stock rater than rescheduling, they are limited because:
a)they only apply to government to government loans and don’t deal with commercial debt nor outstanding loans to IMF or World Bank
b)the terms apply to a restricted number of countries.
The main problem, however, is that they have not yet been adopted. The principle opponent currently is Japan.
20.The debt crisis has caused considerable concern among Irish organisations involved in work with the Third World. The Coalition on Debt and Development was launched at the end of last year sponsored by over 50 missionary, development, solidarity and environmental groups. The Coalition’s aim is to raise awareness on the debt issue. They are urging Irish representatives to support effect debt reduction strategies as members of the IMF and World Bank.
21.As a contributor to the IMF and World Bank Ireland is represented at these institutions. While Ireland has not been a major lender to the Third World, an important role can be played in promoting action for effective debt relief.
22.The Irish Government is very much aware of the crushing burden of debt on the poorest developing countries, and believes that their debt burden is a major impediment to growth and a factor in preventing them from undertaking programmes and policy initiatives for their own sustainable development. It is also conscious that structural adjustment programmes often entail severe hardship. Ireland has consistently argued in International Financial Institutions that the poorest sectors of society must be protected from the harsh economic and social impacts of structural adjustment programmes, and has raised its concerns in the World Bank and the IMF on the debt issue a number of times.
23.The Minister for Finance, as Governor for Ireland for the World Bank Group and the IMF, sought at the last Annual meetings of these bodies, the formulation of a debt-relief package at least in line with the Trinidad terms.
24.The Oireachtas agreed in 1993 that Ireland would contribute to the tenth replenishment of the International Development Association (the soft-loan arm of the World Bank which provides concessionary finance to the poorest developing countries) and to make a supplementary voluntary contribution - totalling, in all, £13 million.
25.Ireland believes that the formulation and implementation of debt relief schemes needs to be tackled at global level. The Irish Government has stated that it will continue to support all efforts being undertaken in international fora to provide debt relief particularly for the least developed countries.
26.This year marks the 50th anniversary of the establishment of the IMF and the World Bank. Accordingly, while it is recognised that other bodies (such as the Paris Club and commercial banks) have a major involvement, it is appropriate to recommend realistic reforms in the actions of the IMF and the World Bank regarding Third World Debt. These recommendations should be supported and promoted by Ireland as a member of these institutions.
27.The IMF and World Bank should spearhead the case for effective debt relief, and should push for the adoption of the Trinidad Terms as a first step towards more comprehensive debt relief, as well as a new approach to debt relief which starts from the requirement to meet the human and economic needs of developing countries, rather than to maximise debt collection.
28.There is an overwhelming case for reducing the debt profile of the IMF in Sub-Saharan Africa. Currently the IMF holds gold stocks valued at $36 bn. The IMF could write off the whole of the Fund’s exposure in Africa by using merely 10% of its reserves.
A special fund should be created to write off Africa’s debt to the IMF through the sale of these gold stocks.
29.Reform of World Bank and IMF Policies
a)Accountability
Policy Framework Papers:
The IMF should respond to calls from citizens in developing countries to make the Policy Framework Papers available to the social partners in countries negotiating and adopting Stabilisation and Structural Adjustment Programmes.
Country Reviews:
Periodically, the IMF Board of Directors reviews the performance of Stabilisation programmes in debtor countries. The names of countries under assessment are not disclosed prior to the review. The IMF should announce the countries on the review agenda prior to the Board of Directors’ discussion.
b)Poverty Alleviation
While the introduction of the Social Dimensions of Adjustment is to be welcomed, these have so far failed in their objective. The World Bank must reform and monitor its poverty related interventions.
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Brian Lenihan T.D.,
Chairman
12 April 1994
