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Eurodad staff list

Multilateral debt: one step forward, how many back?

16 May 2007

In July 2005, G8 governments made a bold announcement that they had agreed to cancel up to US$55bn owed by some of the world’s most impoverished and indebted nations. This followed significant public pressure by social movements and non-governmental organisations (NGOs) around the globe. It took the IMF and African Development Bank (AfDB) six months to deliver on their side of the cancellation and one full year of arduous behind-the-scenes political negotiations before the World Bank finally started to deliver on its part of what has become known as the Multilateral Debt Relief Initiative (MDRI).

Some 29 beneficiary countries will save US$1.25bn in debt service payments in 2007. Their governments have pledged to use these resources to boost spending on a number of Millennium Development Goals (MDGs), including the social sectors and basic infrastructure development. These were some of the core objectives behind international campaigns for debt cancellation.

But the governments which benefited from debt service reductions also faced reductions in new finance, especially from the International Development Association (IDA – the concessional loan window of the World Bank) and Inter-American Development Bank (IDB). Although the IMF portion of the debt cancellation agreement is entirely additional, this is offset by the fact that other creditors have reduced levels of future concessional finance. This means that the MDRI has provided less additional money for countries to spend on poverty reduction than may have been suggested by official announcements.

From January 2006, a coalition of NGOs launched a campaign to extend the MDRI to further creditors. Eurodad, with other NGOs, argued that Heavily Indebted Poor Countries (HIPCs) in Latin American (Bolivia, Guyana, Haiti, Honduras and Nicaragua) had been unfairly treated because the MDRI deal had excluded debts owed to the Inter-American Development Bank while it had included debts owed to the African Development Fund (AfDF). These Latin American countries owed on average one-third of their debts to the IDB and would see a debt write-down of only around 30%. In March 2007, the IDB’s President Luis Alberto Moreno announced that his institution would be incorporated into the MDRI and will cancel US$4.4bn owed by Bolivia, Guyana, Haiti, Honduras and Nicaragua. This paper unpacks the main features of the recent deal.

There have also long been questions about which countries are included in the HIPC and MDRI lists and about the onerous conditions faced by governments considering joining. In February 2007, the Kyrgyz Republic announced that it would not join the HIPC Initiative despite its eligibility. This followed a very vocal and public anti-HIPC campaign by civil society organisations in the country. This paper looks at the civil society anti-HIPC campaign in that country.

In 2005, donors pledged to reimburse the World Bank and African Development Bank for the funds they would lose through this debt write-off. How far has this promise been kept? And post-MDRI, what issues are capturing the “hearts and minds” of policy makers?

This paper analyses these new questions and updates civil society organisations and other stakeholders on the latest developments as they relate to the HIPC Initiative and the MDRI. We ask: