Local view for "http://purl.org/linkedpolitics/eu/plenary/2005-01-12-Speech-3-213"
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"en.20050112.11.3-213"2
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".
Mr President, we all agree that for some developing countries external indebtedness is a major obstacle for growth and development. We should acknowledge the merits of the debt relief initiative currently applied, the Highly Indebted Poor Countries – or HIPC –Initiative, which was launched in 1996. This is the most comprehensive debt relief initiative ever taken. It will reduce the debt burden of the highly indebted poor countries by approximately two-thirds, demonstrating a commitment to poverty reduction.
So, debt relief is a bad aid allocation mechanism, but it can be a good way of delivering aid, as it provides a quick method of disbursement, ensuring a predictable flow of resources directly into the budget with limited transaction costs.
It could also be used to protect vulnerable, low-income countries from the effect of exogenous shocks. In these cases, some sort of temporary relief of the debt could help mitigate the adverse effects of external shocks on the poverty-reduction strategies of beneficiary countries. That is also the case as regards the moratoriums, which, as already mentioned, were discussed today by the presidency in Paris in relation to the tsunami-affected countries.
To sum up, debt relief is not a panacea which by itself creates new resources, nor does it automatically translate into services for poor people or economic growth. However, it may be an effective way to deliver support and a good way to provide swift assistance after shocks. To tackle poverty and to attain the Millennium Development Goals, the real challenge is to ensure appropriate levels of development financing. We need to reach agreement on new and sufficiently ambitious targets for official development assistance by 2009 for us to have a real prospect of attaining those goals. Debt relief can be a useful tool in that quest, but it can by no means offer a really full response.
The Commission and the Member States have gone beyond the HIPC requirements. Most Member States have committed themselves to cancelling 100% of the bilateral claims. The Commission has done the same for all special loans in least developed countries eligible for HIPC debt relief. However, it is now widely recognised that HIPC relief will fail to ensure long-term debt sustainability. It is clear that more needs to be done for the poor countries that benefit from the HIPC Initiative. Pressure is increasing to extend debt relief to the other developing countries.
The World Bank and the IMF are developing a new framework for long-term debt sustainability in low-income countries. This should help to prevent the accumulation of new debt. The Commission is following this debate closely to ensure the transparency of the decision-making process. The Paris Club of creditor governments has developed the so-called Evian approach to deal with non-HIPC countries. It takes into account debt sustainability considerations, allowing the Paris Club to adopt its response to the financial situation of the debtor country and to make the resolution of crises more orderly, timely and predictable. One application of these new rules was the Iraqi case.
The Commission is not
against debt relief in favour of middle-income countries. It supports the Evian approach of the Paris Club, which looks at the financial situation of each country rather than defining standard terms as has been done in the case of Iraq. Iraq is not indebted to the Commission but, as a sign of solidarity with the Iraqi people, the Community pledged a contribution of EUR 200 million to the Reconstruction Fund Facility for Iraq at the Madrid Conference. However, the Commission does not want assistance for Iraq, whether through debt relief or other mechanisms, to be given at the expense of the poorest countries.
More recently, the UK and the US have both called for 100% cancellation of multilateral debt for low-income countries, although with different approaches towards its financing. The proposal of full cancellation may appear attractive, but it entails risks in terms of aid allocation.
The Commission's finance study demonstrates that the HIPC Initiative has already distorted the allocation of aid because the levels of debt relief are not related indicators of poverty, nor – and this is very important – do they reflect performance in tackling poverty. The countries benefiting most from the initiative are by no means the best performers or the poorest countries within the group.
Some examples will illustrate my point. The country benefiting most on a per capita basis from HIPC debt relief is Guyana, with USD 769 per capita received. It ranks 92nd in the Human Development Index. However, Niger, which ranks 174th in that index, receives only USD 48 per capita relief.
The total cancellation of debt for all African countries would lead to considerable inequalities in the distortion of aid among them, measured by their relative poverty levels. Eritrea – one of the poorest countries in Africa – would receive USD 56 per capita, while the Seychelles, one of the richest countries of the continent, would receive USD 2 572 per capita, which makes a huge difference.
Further debt relief could lead to further distortions in aid allocation. In a world of limited resources, debt relief granted to middle-income countries should not detract from the amounts available to the neediest ones."@en1
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