No. 18 — May 5, 2000

Feature Article

FORGIVING POOR-COUNTRY DEBT: WILL JAPAN LEAD THE WAY?

Marc Castellano

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Summary

In an age of unparalleled prosperity for the rich nations of the world, a new consciousness has emerged about the plight of poor countries. The most destitute are so overwhelmed with debt that the majority of their citizens are bereft of such basic human needs as clean water and lack access to even primary education. Many of these poor nations are caught in a spiral of economic deterioration. In an attempt to remedy this dismal situation, leaders of the Group of Seven industrial nations agreed to implement a landmark debt-relief program at their June 1999 summit meeting.

Motivated in part by the vociferous campaigns of nongovernmental organizations and strongly backed — at least in principle — by the world's most powerful economies, the debt-relief effort seemed destined to succeed. However, momentum quickly dissipated as a host of unexpected difficulties arose, and key questions that had not been addressed effectively by international creditors reemerged to hamstring the process.

For Japan, the owner of the largest amount of poor-country debt, the issue of burden-sharing is critical. The details of the qualification process and the question of whether or not to impose strict conditions on loan cancellations still are topics of global debate. Nevertheless, Tokyo threw its weight behind the initiative in early 2000 and since has announced a range of new supportive policies. As chair of the upcoming summit of the G-7 plus Russia to be held on Okinawa this July, the Japanese government is keen to take the lead in advancing the debt-relief program.

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Introduction

In 1996, the World Bank and the International Monetary Fund launched a major effort to reduce the burdensome loan payments of the world's most destitute nations, identifying 41 "heavily indebted poor countries." The so-called HIPC Initiative was designed to help impoverished nations that were unable to meet the basic education and health-care needs of their citizens because of overwhelming debt obligations. To avoid the otherwise inevitable default and the risk of economic deterioration, a plan was devised to make countries that followed sound fiscal policies eligible for forgiveness of up to 80 percent of their debt. The initiative involves all types of creditors — bilateral, multilateral and commercial.

Of the 41 HIPCs, 34 are in sub-Saharan Africa, and three — Laos, Myanmar (formerly Burma) and Vietnam — are in Asia. Generally, the countries had a per capita gross national product of $695 or less and owed debt equal to 80 percent or more of GNP in 1993. The HIPC Initiative, which evolved from similar programs hatched in Toronto (1988) and Naples (1994), got off to a slow start. As of 1998, only $6 billion in nominal debt relief had been committed to seven countries, a drop in the bucket relative to the total obligations of the 41 HIPCs, which the IMF put at between $150 billion and $200 billion.

In early 1999, German Chancellor Gerhard Schroeder gave the HIPC Initiative a big push by issuing a statement that called on the industrialized nations to forgive all existing official development assistance loans to the HIPCs by December 31, 2000. Soon after, at the June 1999 summit of Group of Seven industrial nations in Cologne, Germany, leaders agreed in principle and approved a broad plan to provide substantial debt relief for the world's poorest countries (see JEI Report No. 24B, June 25, 1999).

The deal, a compromise built around American proposals, involves the elimination of up to $70 billion — and perhaps more — in debt owed to creditor nations by 36 HIPCs. The agreement came after Japan and France, which together hold nearly 70 percent (44 percent and 25 percent, respectively) of the roughly $20 billion worth of outstanding G-7 ODA loans to the HIPCs, were satisfied that their demands for sharing the burden of implementing massive loan cancellations would be met by the other G-7 members. The new plan, which promised faster, broader and deeper debt relief for countries in dire straits, was dubbed the Cologne Debt Initiative and now more commonly is referred to as the enhanced HIPC Initiative.

At a September 1999 meeting in Washington, the World Bank/IMF Development Committee and the IMF's Interim Committee took on the task of hashing out the details regarding financing and burden-sharing (see JEI Report No. 37B, October 1, 1999). Three key decisions were made. First, debt sustainability thresholds, a way of quantifying the extent of a country's debt by looking at such ratios as debt-to-GDP and debt-to-exports, would be lowered, expanding the group of countries potentially eligible for assistance.

Second, the level of debt reduction in terms of net present value would be increased to 90 percent or more for non-ODA loans, debt that includes trade insurance and credits extended by export-import banks. The net present value of debt is a measure that takes into account the concessionality of the loan — or, the degree to which it has been extended at below-market interest rates — to yield a better estimate of total debt. The IMF defines net present value as the sum of all future debt-service obligations (interest and principal) on existing debt, discounted at the market interest rate.

Finally, the criteria used to establish the so-called completion point at which international financial institutions actually implement the bulk of debt-relief would be made more flexible. In accordance with these three provisions, the first solid framework was set in place.

At the same time, the money needed to fund the program at a minimum level was secured. Washington, widely considered a key player in the process, pledged nearly $1 billion to the effort. Other major capitals — with the notable exception of Tokyo — followed with promises of substantial contributions. With total commitments then reaching almost $2.5 billion, a level that theoretically would allow loan-cancellation programs to begin immediately, Gordon Brown, Great Britain's finance minister and head of the committee charged with administering the enhanced HIPC Initiative, hailed the meeting as a success.

Significantly, the IMF also was able to clear an important hurdle. Initially, the fund had planned to sell bullion worth roughly $2 billion on the open market, but many influential members of Congress feared that the resulting glut would drastically reduce the precious metal's already- low price and hurt the gold industry. The international organization appeased the gold industry and the forces of opposition in Congress with a scheme to revalue its gold reserves as a means of financing its portion of the program.

IMF accountants simply would update the bullion's book value, which was established decades ago at $45 per ounce, a valuation that was significantly below the current market price of roughly $280 per ounce. A paper sale-and-buy-back scheme involving 10 million ounces of gold would yield a profit of about $2 billion, which could be applied to the IMF's portion of the debt-relief program. Congress allowed a portion of the gold sales to proceed in late 1999.

Ultimately, just under a dozen countries were targeted to receive benefits by the time of the spring IMF and World Bank meetings scheduled for April 2000. In a marked break with the past, expectations were raised that debt relief finally would be provided in an expedient manner to qualified countries. However, a number of stumbling blocks still existed. First and foremost, the G-7 countries would have to reconcile their differing aid philosophies and convince their skeptical domestic constituencies that the enhanced HIPC Initiative was worth the tremendous cost — no small task, to be sure.

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Japan: Leading The Way?

In order to instill fiscal discipline and encourage responsible spending, Tokyo's foreign aid policy emphasizes loans rather than grants, which essentially are handouts. Thus, aid administrators in the Ministry of Foreign Affairs traditionally have been reluctant to write off loans to poor countries. A debt-relief scheme should be considered only as a last resort and, at the very least, should come with conditions aimed at ensuring some repayment and economic reform, or so the thinking went.

In signing on to the enhanced HIPC Initiative in June 1999, Tokyo indicated that it would require that debtor nations first repay loans that had been restructured to ensure a manageable schedule, then it immediately would extend an equal amount in the form of grants-in-aid. This two-part process would be equivalent to debt relief, and would be handled in such a way that the borrower repaid its loans. This system, according to Japanese officials, would help ensure that aid funds would be used for socioeconomic and development purposes. Notably, procurement conditions would be untied, allowing the debtor country to purchase goods and services from any source.

Moreover, MOFA said that it would stop issuing new ODA loans and extend only grants-in-aid — and, in much smaller amounts — to those nations that accepted debt relief. However, because this policy came under fire from foreign critics who argued that it not only defeated the purpose by essentially barring debtors from future loans but also discouraged potential participants, Tokyo attempted to craft a more diplomatic line as the program developed. Nevertheless, proponents of the HIPC Initiative remained dissatisfied and continued to insist that Japan consider debt relief a supplement to regular aid, not a substitute for it.

In March, attempting to clarify Tokyo's position on the matter, MOFA released a policy statement saying that it would continue to support HIPCs with a "wide range of ODA measures, regardless of whether or not they receive debt relief under the initiative."1 However, whether this assistance would include future loans, the bulk of Japan's aid program, was not made clear. The statement also pointed out that Tokyo "fully respects any decision that each HIPC makes as to whether or not it requests debt relief, according to its own philosophy toward nation-building. So allegations that Japan put improper pressure on some HIPCs not to apply for the debt-relief initiative are completely unfounded."2

Yet a month later, in an apparent reversion to its previous hard-line stance, Tokyo indicated that HIPCs that requested 100-percent loan forgiveness would not be eligible for future ODA loans. This time, new objections to unconditional debt relief were added. Officials worried that countries that defaulted would face difficulty in attracting foreign direct investment, hurting long-run growth prospects. Furthermore, according to these policymakers, giving new money to countries whose entire debt bill had been canceled would demoralize those nations that had worked hard to keep on a repayment schedule. Thus, MOFA officials expressed the choice as a clear trade-off: countries could accept debt relief but only at the cost of forgoing new loans in the future. Despite its earlier apparent wavering, the heart of the hard-line policy remained inflexible.

Additional misgivings about the HIPC Initiative stemmed from a number of interrelated factors. First, the Japanese public is highly critical of the debt-relief program. Many people feel that it will do little to help resolve the complex problems of debtor countries or alleviate the levels of poverty faced by developing nations. Moreover, the strain of roughly a decade of dismal economic performance in Japan has drained government coffers and has squeezed fiscal resources. Taxpayers have become less willing to support Japan's vast foreign aid program, which is the largest in the world in terms of absolute outlays.3 Any loan-cancellation scheme not only would cost a tidy sum — about $10.5 billion according to official MOFA estimates — but also would yield a questionable amount of benefit.4 Tokyo likely would gain political kudos from the international community, but the domestic economy, the health of which is now a dire concern for most Japanese, would get no such boost. Indeed, Japan's economy could be affected adversely as official funds for debt relief, secured at the expense of enlarging an already record-high national debt, flowed overseas. The fact that Japan has the most to lose is another reason for Tokyo's initial reluctance to enthusiastically support the loan-cancellation program. As of March 31, 1998, Japan had some ¥930 billion ($8.5 billion at ¥110=$1.00) in outstanding ODA loans to HIPCs. This amount represents more than 40 percent of the total official credit extended by G-7 members — Canada, France, Germany, Great Britain, Italy, Japan and the United States. Counting both ODA and non-ODA loans to HIPCs, Japan's bilateral claims total $10.5 billion, also the largest sum among G-7 nations. Of course, part of the reason that Japan's share is so large is that its aid program relies so heavily on loans. In 1996-97, grants made up only about 40 percent of Japanese ODA, compared with the global donor community's average of 78 percent.

As of March 31, 1999, Myanmar was the country most heavily indebted to Japan with ¥272.5 billion ($2.5 billion) in yen loans outstanding.5 Kenya, in second place just ahead of Vietnam, owed a balance of ¥117 billion ($1.1 billion). In Asia, loans to Myanmar, Vietnam and Laos amounted to ¥329 billion ($3 billion), or 40 percent of the total yen loans to HIPCs.

Despite philosophical concerns and worries over burden-sharing, Tokyo agreed last June to support the HIPC Initiative. Gradually, international pressure from nongovernmental organizations and official sources softened opinions in the Ministry of Foreign Affairs, the chief aid-administering agency. Early this year, policymakers began to pay more attention to debt relief, realizing its increasing prominence in the international arena.

Significantly, then-Prime Minister Keizo Obuchi broke Japan's customary reticence on the issue at the February 2000 meeting of the United Nations Conference on Trade and Development, held in Bangkok (see JEI Report No. 7B, February 18, 2000). There, he described the "pressing need" to extend debt relief to the poorest countries of the world and called for the early implementation of the HIPC Initiative.6 Furthermore, Mr. Obuchi promised that Japan, as chair of the next G-7 summit, would work with the other industrial nations to advance the program.

A month later, Tokyo formally introduced a bold new strategy, ostensibly to have something to bring to the table at the IMF/World Bank meetings in April and to avoid the criticism that Japan was not taking an active role in moving the initiative forward. A series of official statements released in March outlined a comprehensive position that differed from past policy in some important ways. First, MOFA echoed Mr. Obuchi's comments, highlighting the urgency of the debt-relief plan and urging the involvement of other G-7 nations.

Second, officials emphasized Japan's past participation in debt-relief schemes. Since 1978, Tokyo has written off a cumulative total of ¥340 billion ($3.1 billion) in debt owed by 27 of the world's poorest countries. Moreover, on many occasions Tokyo has worked with the Paris Club, a group of official creditors that meets on an as-needed basis to reschedule the debt of nations that have fallen in imminent danger of default. As of FY 1998, Tokyo had restructured ¥940 billion ($8.5 billion) in bilateral ODA loans.

In addition, Japan already was running full ODA loan-cancellation programs for 19 HIPCs and 80-percent debt forgiveness for 22 HIPCs before the Cologne Debt Initiative was even proposed. The basis for Japan's loan-waiver program stemmed from a so-called TDB grant. In 1978, the Trade and Development Board of UNCTAD adopted TDB Resolution 165 (S-IX), which called on the donor community to adopt measures to ease the terms of past bilateral ODA loans. In accordance with this initiative, Tokyo introduced debt-relief programs to help the poorest developing nations escape overwhelming repayment burdens. From 1986 through 1997, grant disbursements for this purpose grew significantly, increasing nearly sixfold over the 11-year period (see Table 1). Yet aid administrators acknowledge that these numbers pale in comparison with the potential outlays that will be needed to implement the enhanced HIPC Initiative.

Table 1: Japan's Annual Grant Aid for Debt Relief, FY 1986-FY 1997

(in millions of yen)

Fiscal Year

Amount

1986

¥7,900

1987

8,100

1988

9,300

1989

22,200

1990

31,800

1991

32,600

1992

39,500

1993

41,200

1994

42,700

1995

44,000

1996

45,700

1997

46,400

Source: Ministry of Foreign Affairs

 

MOFA officials also spotlighted Japan's efforts in Africa. At the October 1998 Second Tokyo International Conference on African Development, Mr. Obuchi had announced that an ongoing debt-relief program would be expanded to include an additional group of countries (see JEI Report, No. 41B, October 30, 1998). The new initiative, slated to run until 2025, would double loan-waiver amounts from ¥30 billion to ¥60 billion ($272.7 million to $545.5 million). Under the plan, eligible African countries were to receive an annual grant equal to their repayment obligation to Japan for loans that had been initiated between FY 1988 and FY 1997. Tokyo also pledged to provide training and to organize seminars on debt management for African nations. Such conferences were held in Kenya in August 1999, in Singapore in December 1999 and in Tunisia in April 2000.

More broadly, policymakers pointed to Japan's already-substantial contributions to developing countries, which, since 1992, have made it the world's largest provider of ODA. In 1998, Japan was the second-largest donor, after France, to sub-Saharan Africa and provided the equivalent of more than $1 billion in ODA to the region.7

The third major component of the policy announcement was Japan's pledge to contribute additional funds to the debt-relief effort (see JEI Report No. 16B, April 21, 2000). Specifically, Tokyo will forgive up to 100 percent of non-ODA debts, 10 percent more than it had agreed to previously under the Cologne Debt Initiative. MOFA officials estimate that this new commitment will cost an additional $943 million. Furthermore, Tokyo will boost its contribution to the World Bank's HIPC Trust Fund, from the scant $10 million originally pledged to a more substantial $200 million. About $190 million will go to the IMF and about $10 million to the World Bank Trust Fund.

Finally, Tokyo will increase the budget for grants-in-aid to HIPCs. Although no figures were provided, this expanded funding surely will give Japan's bilateral debt-relief program a shot in the arm. In short, in a marked break with the past, Tokyo has given the debt-relief issue a high priority and is attempting to lead the rest of the donor community toward speedy implementation.

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The Global Debate

Despite its apparent widespread support, the enhanced HIPC Initiative has run into a series of snags and has made slower progress than its proponents had hoped. First, the process of qualifying debtors has taken longer than expected. Countries must complete two trial stages before they actually receive benefits. At the end of the first phase, an evaluation period that lasts roughly two to three years, candidates reach the "decision point," at which time the IMF and World Bank formally determine eligibility and calculate an appropriate level of assistance. During the second phase, a HIPC that adheres to previously agreed-to macroeconomic and social policy reforms can begin to receive interim debt relief. After a variable, performance-based time frame, the country reaches its completion point. Only then do the participating creditors make the bulk of debt relief effective.

As of early April, only one country was expected to reach its completion point under the enhanced HIPC Initiative. However, at the last moment, even this achievement was jeopardized. The story of what happened in Uganda effectively illustrates the broad range of problems that have fueled the debate over the program — and have stalled the process.

Over recent years, Uganda had won praise for its efforts to combat poverty. Money freed from preliminary debt cancellation was channeled successfully into primary education and health care, where it was needed most urgently. As a result of strict controls, funds were spent responsibly and kept from the hands of corruption and incompetence. Schools were constructed, roads were built and antimalarial drugs were distributed. Unprecedented optimism bloomed as Uganda was set to become the first country to realize meaningful debt relief.

However, just as international creditors were about to formalize the advancement of the African nation to its completion point, its government bought a $36-million jet for Uganda's president — a purchase that was widely criticized as highly extravagant. By some estimates, the plane's price tag roughly equaled the country's potential savings in annual debt payments under the loan-cancellation program.

Uganda's action outraged critics of the enhanced HIPC Initiative, who all along had pointed to such spending as a key problem. Indeed, one of the broad questions at the center of the debate is whether debt-relief actually will help those who need it most. Such concerns clearly are as valid today as they have been in the past. Historically, financial assistance to HIPCs often has been squandered by autocratic leaders, who have channeled funds into personal accounts at Swiss banks or used aid money to bankroll private wars.

One solution is to impose strict conditions on spending. However, that idea is controversial because some critics assert that conditionality perpetuates the paternalistic north-south dynamic, further aggravating relations between rich and poor countries. Bank of Botswana Governor Linah Mohohlo, for example, has lashed out at the current program, which requires that before any funds are released a country must produce poverty-reduction strategy papers, which are essentially an outline detailing where the money freed from debt will be spent. Ms. Mohohlo contends that the onerous conditions significantly hamper the process. To many HIPCs, the imposition of conditional terms is tantamount to an invasion of sovereignty. Furthermore, such requirements are insulting to those countries that have put aid money to good use.

Other important questions remain. Debt-forgiveness inevitably invokes problems associated with moral hazard. If HIPCs learn that default in effect has no consequence, what will motivate them to be responsible debtors in the future? That is, if one country is permitted to renege on payments, what incentive do others have to work hard to pay back their loans? On the other hand, many HIPCs are saddled with debt that was incurred during a previous regime to which the current leadership has no relation. Some observers contend that it is not fair to punish the present generation for misdeeds committed by their predecessors, usually a limited number of corrupt individuals who now are gone or dead. Moreover, reality may outweigh moral hazard considerations. In other words, most poor countries simply cannot pay what they owe and likely never will be able to. Such a situation leaves debt relief or default the only options.

Still-broader issues persist. According to the Bank for International Settlements, total claims, including bank, public sector and non-bank private-sector loans, against the developing world as a whole stood at $810 billion in June 1999. Determining which countries should qualify for debt relief, and exactly how much, is a highly subjective process. No universal philosophy exists to set a common standard. Oxfam International, a nongovernmental anti-poverty group that has been at the forefront of the issue, has lobbied for full debt forgiveness for all HIPCs — and then some. Why not include countries like the Philippines that almost meet the HIPC criteria?

Finally, funding is a problem. Although the G-7 nations have agreed, under various terms and conditions, to cancel all bilateral debts, writing off multilateral loans worth an estimated $28.2 billion in terms of net present value will require additional outlays to the international organizations if their capital is not to be diminished greatly. The HIPC Trust Fund, created as a key part of the initiative to finance debt relief from such regional multilateral banks as the African Development Bank, lacks sufficient resources. The trust fund has secured some $2.4 billion in bilateral contributions and pledges from about 20 countries (see Table 2), but $25.8 billion still is needed. Regional banks can use their own funds to write off debt, but that approach means that they must reduce new lending and charge other beneficiaries, both of which are controversial.

Table 2: Status of Bilateral Donor Pledges1 to the HIPC Trust Fund, April 2000

(in millions of dollars)

Country

Contributions Made

Before September 1999

Contributions Made

After September 1999 2

Country Total

Australia

$5

$7

$12

Austria

0

19

19

Belgium

12

28

40

Canada

27

75

102

Denmark

26

16

42

Finland

15

11

26

France

21

178

199

Germany

27

225

252

Great Britain3

171

145

316

Greece

1

9

10

Ireland

15

4

19

Italy

0

162

162

Japan

10

190

200

Luxembourg

1

2

3

Netherlands

61

108

169

New Zealand

0

2

2

Norway

42

0

42

Portugal

15

7

22

Spain

15

113

128

Sweden

28

20

48

Switzerland

30

0

30

United States

0

600

600

Total

522

1,921

2,443

1Figures are approximate. Some contributions are in the donor's national currency and in the form of a promissory note.

2Exchange rate for European Union/European Community is euro 1.00=$1.00.

3Great Britain contributed an additional $31.5 million in Special Drawing Rights to the HIPC Trust Fund for IMF debt relief to Uganda.

Source: International Monetary Fund

 

Tokyo believes that debt relief is not the panacea that will alleviate poverty in developing nations. Japanese officials look to guidelines laid out by the Development Assistance Committee, the aid arm of the Paris-based Organization for Economic Cooperation and Development, as appropriate criteria. To meet the 2015 International Development Goals, outlined in DAC's New Development Strategy on poverty reduction and provision of basic services, debt relief must be combined with broad strategies that will foster long-term growth that is both sustainable and equitable. Significantly, HIPCs themselves must play their part in implementing effective policies to achieve such results. Capacity-building should be a key part of the process.

Accordingly, Tokyo believes that focusing too much on debt forgiveness is imprudent, as the significant implications of such relief also must be considered. The financial credibility of a country accepting debt relief likely will be diminished if all its official debts are erased, and, as a consequence, midrange to long-term capital inflows, a critical source of economic fuel for HIPCs, may suffer a decline. On the other hand, removing the burden of paying back official debt could enhance a country's ability to repay private loans. Thus, other governments' views differ from Japan's, and some are trying to find a politically acceptable position.

Washington, regarded as a key player in the debt-relief initiative, still is divided. The Clinton administration has been struggling to win Congressional backing for the money needed to support the initiative. Legislation passed last year authorized roughly one-third of the direct costs to the United States of implementing the enhanced HIPC Initiative, but much more needs to be done. In March, the Senate Foreign Relations Committee indicated that it would support a measure to provide the $600 million needed for the U.S. contribution to the HIPC Trust Fund. However, Congress has yet to appropriate the money, including $210 million that is needed immediately. Also pending is authorization for the IMF to use the remaining earnings from its gold sales.

Resistance stems in part from broader concerns about the role and efficacy of international financial institutions. The IMF and the World Bank have been under attack from U.S. critics who claim that the organizations are outmoded and in need of drastic reform. A special Congressional panel established to examine the issue recently released a report suggesting that the multilateral banks provide full debt relief — and fund it out of their own pockets. The Meltzer Commission's recommendations could complicate the Clinton administration's efforts to win approval for the $600 million allocation.

Recently, other capitals have made progress. Paris announced at an April Euro-African summit in Cairo that it would write off up to $7 billion of poor-country debt by 2004. According to French officials, this new commitment means that Africa's HIPCs will be absolved of their debt payments to France within three to four years. The debt write-offs are to come in the form of annual cash grants to foster greater transparency in the postwrite-off period.

Madrid coincidentally announced that it would forgive all private and public debts owed by Mozambique, a country recently overwhelmed by torrential floods. Rome announced in February that it would consider providing bilateral debt relief to 36 HIPCs, double the number it had agreed to help previously. Eventually, all G-7 capitals pledged to forgive 100 percent of their bilateral debt to poor countries, but Berlin, the last to make such a concession, held out until April.

Nevertheless, lack of funding for its multilateral portion has prevented the enhanced HIPC Initiative from advancing. Last June, the G-7 set a target of moving three-quarters of the eligible countries to the decision point by the end of 2000. So far, however, only five have made that milestone (see Table 3) and only 14 are expected to reach the decision point by yearend. At the April meeting of G-7 finance ministers and central bankers, officials admitted that they were moving too slow. Their postmeeting communique indirectly acknowledged that the initiative was behind schedule and urged lenders to finalize their positions as quickly as possible.

Table 3: Status of Country Cases Under the Enhanced HIPC Initiative, April 2000

Country

Decision Point

Completion Point

IMF and World Bank Assistance Levels (in millions of dollars, present value)1

Estimated Total Nominal Debt Relief (in billions of dollars)

Bolivia

February 2000

Floating

$854

$2.1

Mauritania

February 2000

Floating

622

1.2

Mozambique

April 2000

Floating

254

3.7

Tanzania

April 2000

Floating

2,026

3.1

Uganda

February 2000

Floating

656

2.0

1Assistance levels are at countries' respective decision or completion points, as applicable.

Source: International Monetary Fund

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Conclusion

The enhanced HIPC Initiative was hailed as a watershed in the history of poor-country debt relief. However, much of the momentum that carried it to the forefront of the international stage has dissipated in the face of unforeseen difficulties. Rich nations still are dithering over how much to contribute to the effort, and the IMF and the World Bank have been unable to advance any of the eligible HIPCs to their completion points, leaving many poor countries to wonder whether meaningful debt relief ever will be accessible. The next pivot point is this year's summit of the G-7 plus Russia, which will be held on Okinawa in July, and where leaders will take up the issue again.

As chair of the meeting, Tokyo has much more at stake than its $10-billion or so share of outstanding HIPC debt. Also on the line is Japan's reputation as a global leader. With this in mind, Japanese officials have launched a major effort to rally support for the debt-relief program. So far at least, Tokyo's initiative has not spurred others to take significant action, but an OECD development official has praised the move as meaningful and courageous. To be sure, forgiving poor-country debt is more complicated for Japan than for the other G-7 countries. Yet Tokyo's critical tasks will be to come up with more money for the HIPC Trust Fund and, more importantly, to convince others to follow its lead.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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Notes
aaa

1aa Ministry of Foreign Affairs, "Japan's Basic Position on the Debt Problem Faced by the Heavily Indebted Poor Countries (HIPCs)," March, 2000. Available at http://www.mofa.go.jp/policy/oda/loanaid/debt0002.html. Return to Text

2aa Ibid. Return to Text

3aa See Marc Castellano "Japan's Foreign Aid Program In The New Millennium: Rethinking 'Development,'" JEI Report No. 6A, February 11, 2000. Return to Text

4aa MOFA, op. cit. Return to Text

5aa "Myanmar Tops List of Least Developed Countries With Huge Debts To Japan," Nikkei Net Interactive, April 26, 1999. Available at http://www.nni.nikkei.co.jp. Return to Text

6aa Speech by Prime Minister Keizo Obuchi at the 10th Session of the United Nations Conference on Trade and Development, Bangkok, Thailand, February 12, 2000. Available at http://www.mofa.go.jp/policy/un/unctad/speech0002.html. Return to Text

7aa Organization for Economic Cooperation and Development, The DAC Journal, "Development Co-operation 1999 Report," I, No. 1 (Paris: 2000), p. 224. Return to Text

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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