Written Answers. - Third World Debt.
Jim O'Keeffe
Question:
132
Mr. J. O'Keeffe
asked the
Minister for Finance
his views on debt cancellation for Third World countries; the position in relation to the poverty reduction growth facility; and if, in particular in relation to Zambia, debt repayments to the International Monetary Fund will rise despite the debt reduction arrangements.
[6448/01]
The Debt and Development Coalition of Ireland and the Jubilee 2000 campaign, which operates internationally, have conducted a high profile campaign in favour of the outright cancellation of the unpayable debts of the world's poorest countries. The Irish Government is highly sympathetic to the plight of the heavily indebted poor countries and continues to work for the most generous and flexible application of the HIPC initiative.
At the same time, I am not convinced that a call for total debt relief for all the HIPC countries is feasible in so far as this relates to debt owed to the multilateral financial institutions. The HIPC initiative envisages substantial reductions in bilateral debt and I am heartened by the indications that an increasing number of countries are prepared to write off their bilateral debts. At the 2000 annual meetings of the IMF and the World Bank I supported calls from my Canadian colleague, Minister Paul Martin, for a moratorium on bilateral debt of qualifying HIPC countries.
While debt has been a significant constraint for many poor countries it is only one element in the development matrix. We should not lose sight of the broader perspective and of the need to underpin development over as wide a front as possible, particularly at a time when total overseas development aid is being constrained. Ireland has been to the fore in recent times in recommitting to the UN target of 0.7% of GNP.
With regard to the poverty reduction and growth facility, in September 1999 the objectives of the IMF's concessional lending were broadened to include an explicit focus on poverty reduction in the context of a growth oriented strategy. The IMF supports, along with the World Bank, strategies elaborated by the borrowing country in a poverty reduction strategy paper, PRSP, which are prepared with the participation of civil society, including the poor, and other development partners. Reflecting the new objectives and procedures, the IMF established the poverty reduction and growth facility, PRGF, to replace the enhanced structural adjustment facility, ESAF, and this now operates in the broader context referred to above.
In August 1999, Ireland contributed £2.5 million to the poverty reduction and growth facility. This was the first of a series of payments to the PRGF totalling £7 million; a further £1 million was paid in May 2000 and the remainder will be paid in annual instalments of £0.5 million ending in 2007.
I am aware of the difficult situation faced by Zambia where, despite the application of the terms of the heavily indebted poor countries – HIPC – initiative, repayments on loans taken out during the 1990s and which are due to start in 2001 would have led to an increase in its debt repayments. I have expressed my concern to the Bretton Woods institutions, through the Irish representatives at both the World Bank and the International Monetary Fund boards, that Zambia would still face an increase in debt service payments even after receiving full debt relief under the current terms of the initiative. I have stressed that Ireland will support any action necessary to ensure that Zambia's debt service obligations are reduced, and that account be taken of the capacity of Zambia to service debt post-HIPC.
The International Monetary Fund has now recognised the exceptional circumstances facing Zambia and on 1 December 2000 changed the rules governing IMF assistance under HIPC to permit the fund to accelerate debt relief for Zambia. This action was taken to address a hump in the country's total debt service payments resulting from a significant increase in Zambia's IMF debt service. It will buy some time to more fully address the problem of the hump in debt service.
As a result of the IMF board's decision and coupled with decisions by other creditors under the HIPC framework, Zambia's debt service payments in each of the years 2001-2003 will now be lower than in 2000. In the absence of HIPC assistance, Zambia's total debt service would have more than doubled in 2001. However, debt relief is not the whole picture. Fresh donor assistance to Zambia is already several times more than debt service. It is expected that overall net transfers to Zambia will rise by about $100 million in 2001, accounting for 15% of GDP. The IMF, too, will put in more than it is taking out.
The combination of accelerated debt relief and increased aid is expected to allow Zambia to raise social spending from $150 million in 2000 to around $250 million in the 2001 budget. That, more than the precise pattern of debt payments, is what matters most. I will continue to work for the maximum possible degree of generosity to be shown toward Zambia and for the HIPC initiative to be implemented so that it achieves its original objective of giving the countries concerned an exit from the burden of unsustainable debt.
