ISGN > Publications > JUBILEE, DEBT AND THE IMF

UNDP - Civil Society Workshop on Debt and Poverty Reduction
New York, 2-3 January 2000

WHY CIVIL SOCIETY MUST REJECT HIPC
Yash Tandon (Director, International South Group Network)

Let me first introduce my organisation and myself. I am a citizen of a HIPC country, Uganda, and I now live in Zimbabwe. I am director of a network called the International South Group Network (ISGN) which works on issues related to development, debt, human rights, gender, democracy and governance and trade. ISGN was founded in 1994 at the University of Fort Hare in South Africa. ISGN is founder member of Jubilee South (JS) which is distinct from Jubilee 2000 (J2). Whereas J2 was a northern-initiated project that aimed to push pressure on Northern Governments, JS is motivated to enlighten civil society in the South on the debt issue, and to lobby South Governments. Whereas J2 was a short-duration campaign aimed at reducing the amount of debt, JS is a longer-term movement aimed at raising the systemic issue that makes debt such an endemic problem. JS advocates rejection of HIPC and a total cancellation of debt.
 

1.0 The framework of current dialogue between UNDP and Civil Society

1.1 First I'd like to thank UNDP (New York) for inviting us, members of the civil society, to share ideas on this very important subject. We welcome this as part of the larger process of opening up the UNDP to civil society. Having said this, I'd like to say that this is the only diplomatic statement I'd make. From here on I shall not force myself to "be nice". I think it will serve our interest best if we are as candid and open as the tolerance of our hosts would allow. We are not here to embarrass our hosts. But we need to express ourselves freely, or else our being here serves no purpose. Why do I find it necessary to say this? Because I have noticed that developing countries have been losers in international trade negotiations because they tend to think they must remain polite. I have been sitting in some of the trade negotiations in Geneva, and I discovered that the developing country negotiators tend to be either polite out of fear of the presence of donors or World Bank or IMF representatives or quiet because of not wanting to expose their ignorance. On the other hand, the developed country negotiators are hard bargainers, and often downright rude. You will forgive me therefore if I apply some of the lessons I learned in Geneva. If I appear to sound rude, I can only say that I have learned this from my masters.

1.2 So the first point I want to make is that the framework for dialogue of this meeting is not right, it's not fair to us members of the civil society. The objective of this exercise is to work out a UNDP-Civil Society "partnership agenda for action" on enhanced HIPC initiative. This is what UNDP's Aide Memoir says in Par.1. But then in Par.24, it says that HIPC has already been designed, and that it may be "too late" for revisions "to the major components." It goes without saying that this meeting is the "final opportunity (for the WB/IMF) to refine the framework based on compelling feedback from civil society." But we suppose we want not just "refinement" but annulment of HIPC, or a drastic restructuring, are we already time-barred? If so, then this is not right. Do we have to go through the Seattle kind of process again to emphasise that it is not right to decide things above the heads of the people? Why do we have to always protest and say NO, or go to the streets before we are heard? Seattle showed that it is not right to decide matters behind closed doors and then present the people a fait accompli on a take-it-or-leave-it basis. International organisations, especially the WB, the IMF and the WTO, constantly talk about transparency and good governance, but they do not observe these in their own operations. By their lack of democracy, they drive us to the streets to demonstrate and protest. What is the point of being asked to critique HIPC if it is already "too late" to change its architecture? Are we here simply to give a pre-structured design a rubber stamp approval by us so that the WB/IMF can say that the civil society has been "consulted" and now they can proceed with the implementation? I am afraid that we cannot go further on this basis. It's not acceptable to us.

1.3 The sense I have is that even the UNDP is brought on to the HIPC agenda only after the WB and the IMF staff have already worked on the design and got these approved by their respective Boards. I can't speak for UNDP, but if I'm right about the process, then I think the UNDP should also not swallow this kind of insult. The WB and the IMF know that they do not really have a good rapport with civil society in the developing countries, and they do not have the kind of filed presence that the UNDP has. Hence, they have approached the UNDP to take their agenda for them into the field and involve civil society. If the UNDP has brought us here simply to identify our role in operationalising an agreed agenda on enhanced HIPC, then the UNDP is making a serious mistake. UNDP enjoys considerable goodwill among many of us. Do not allow yourselves to be used by the WB and the IMF to make us jump into bed with them.

1.4 So my first suggestion is that the meeting is turned into an honest, open-ended, forum, with no conditions attached to our participation. We members of the civil society and the UNDP should be taken seriously by those who have already designed HIPC and now say it is "too late" to change it in fundamental ways. If this workshop decides that HIPC must be changed fundamentally, then the WB/IMF officials must go back to their drawing boards. We can work in this forum only on that basis. To work on any other basis would be a violation of the principle of democracy and good governance of global institutions.

1.5 The idea of the workshop is to set up a "partnership agenda for action" within six weeks from now. We insist that those of us who have the time and the energy from our side be involved in this process in good faith. We must avoid unilateralism on the part of either the Fund or the Bank or the UNDP.

 

Let me now come to the substance of the matter.

2.0 Why Civil Society must reject HIPC

2.1 Let me first comment on some positive developments. The first is that the WB/IMF have finally made the link between debt and poverty. This, in my view, is a positive development. We in civil society have been arguing for this for years. Debt cannot be handled in isolation of the broader issues of poverty and development. It is simply because of their dogmatism that the staff of these institutions refused to make this link earlier. They insisted on treating debt in isolation of the issue of poverty. Now hat they have made this link between debt and poverty, they are going about it in the wrong way. But to do this we shall come in a minute. The point to note, however, is that the WB/IMF always act almost ten years too late. The other positive development is that they finally brought debts owed to multilateral institutions on to the negotiations agenda. This has taken them even more than 10 years. The bank and the Fund learn lessons exceedingly slowly. They begin to dig a well when people are already dying of thirst. As we shall argue later what holds the Bank/IMF staff back are the interests of G7 countries that control them. The G7 are not really serious about tackling poverty. And the debt agenda is driven by the creditors and not by and in the interest of the debtors.

2.2 The second problem with the Bank/IMF staff is that they do not do their work honestly. They let their professionalism be corrupted by the politics of G7. Corruption, take not, comes in many forms. One (the first phase) is a perfect example of it. It failed because it was badly crafted. That is why they have now designed an enhanced version of it. The Bank and the Fund employ highly paid economists and statisticians, but judging by their record of anticipated gains the HIPC countries should have made but which never materialised, we must conclude that there is something fundamentally wrong about their method of work. One government official from Uganda told me that the WB/IMF figures are derived not from the needs of the HIPC countries in question but from certain political constraints under which the Bank and Fund staff operate. Thus the "debt sustainability" calculations of HIPC One were essentially "negotiated numbers" which had nothing to do with the objective requirement of the situation. For example, suppose it required 90% reduction in debt service flows to bring the debt of a particular country to what might be "sustainable" level, even by Bank/Fund standards. But if this were not politically acceptable to the creditor countries, then the Bank/Fund staff would manipulate figures to conform to the figures acceptable to them. The Bank/Fund staff are really servants of the G7 creditor countries. During the HIPC negotiations, for example, Germany, Japan and the UK raised objections to debt relief on grounds that this would undermine credibility of Bretton Woods institutions and create "moral hazard." Hence, instead of 90% reduction objectively needed by the situation in Mozambique, the Fund staff manipulated the figures so as to make it appear that a 25-30% reduction would still be "debt sustainable." They play all kinds of statistical tricks (like front loading and back loading of high-interest or low-interest loans) so as to please the creditor countries rather than objectively serve the interest of the HIPC country in question. Their figures are manipulated figures. They are politically derived figures. They are not honest figures. The WB/IMF staff have been corrupted by their masters.

2.3 This is also true when they work out, for example. export earning projections. Often these are based on contrived figures in order to come up with debt reduction figures that satisfy the creditors rather than the debtors. Thus, for example, in the case of Uganda they assumed sharp rise in coffee prices and coffee exports in volume in order to get high export-earning figures on which to calculate the debt Uganda would be able to pay "sustainably". But these figures turned out to be quite fictitious. The Fund staff draw their figures and predictions about the market from out of black boxes with completely unreliable set of assumptions. Once again, these assumptions are politically rather than professionally inspired. The figures look impressive only because they appear to be "scientific" in the form of tables or graphs, but their credibility is practically zero.

2.4 These figures are purely public relations exercises to satisfy the press and public opinion in the domestic arena of the creditor countries, to keep the Oxfams and Eurodads at bay. Thus, for example, if Mozambique's debt service figures were say US$300m a year, then the Fund "experts" will manipulate figures to bring these down to say $100m (1/3rd of the total) to make it look politically palatable to the creditors. This would satisfy those criticising the Fund that "something" is being done for the poor Mozambiquans. The impression is created that the country has been "relieved" of $200m, which should have therefore be available for "poverty reduction" when, in fact, no real resources were in fact released. And then the unpaid $200m adds to the debt stock, and thus the debt goes on increasing year after year. If the matter was not serious, and if it did not involve the lives of people, you have to laugh at the sheer absurdity of Bank/Fund logic. It is no wonder that nothing came off HIPC One.

2.5 Let us get deeper into the subject. There is the baggage of conditionality that comes with HIPC. Indeed this is the most dangerous part of HIPC. In 1995, for example, the Bank wanted Mozambique to lower tariffs on processed cashew nuts. Mozambique refused. It had, I think, a 20% protection of its locally processed cashew nuts, and the bank wanted it reduced to 14%. So the bank'' will was imposed on Mozambique as a condition of HIPC "relief". The result was that the local factories could not face competition from Indian cashew nuts, many closed down and 10,000 people lost their job. Now the Bank wants Mozambique to abolish import duty on sugar, all in the name of "liberalising trade". What happened to the cashew nut industry now threatens the sugar industry. And yet the image created in the media and in the domestic arenas of creditor countries is that by introducing HIPC, the Bank/Fund are really acting as "friends" of Mozambique. Well, if you have such "friends", as they say, who need "enemies"?

2.6 Let us go further deeper. This is the WB/IMF dogma that countries pursuing "sound policy environments" induced by the debt "relief" would attract foreign capital, which will solve their problems of poverty. Hence, this is made part of HIPC's conditionality. This is one of the most laughable of Bank/Fund's dogmas. The tragedy is that the staff of the Bank/Fund appears to believe in this hilariously comical assumption. And they want the civil society in HIPC countries to monitor the creation of "sound policy environments" so that foreign capital can come and solve the country's problems. The fact of the matter if that the bank/Fund are putting the horse before the cart. It is not foreign direct investments (FDIs) that bring growth, but growth that attracts foreign capital. In Africa, Angola attracts more FDI because of its oil and despite the civil war than does Zambia, which under the present regime has fulfilled practically all the "policy" requirement of the Bank/Fund to attract foreign capital. The argument that FDIs come to develop third world economics is one of the biggest lies of our time, a lie that is swallowed even by our governments.

2.7 Then there are political conditionalities that come with HIPC. The Bank/Fund economists have no understanding whatsoever of things like democracy or good governance. It is not their job, they have no skills in this area. In any case, their masters have corrupted them. And yet, as directed by their masters, they put good governance as conditions of HIPC. This is another area of absurdity in the Bank/Fund's conceptual baggage. They have no means of monitoring good governance. The notion of corruption has become their sole yardstick to measure good or bad governance. And Transparency International, a body set up by a former President of the World Bank, Robert MacNamara, has become their new-found monitoring mechanism on corruption. This body has designed "scientific" looking scale of corruption that appears to serve the purpose of a substitute for measuring "good governance". And yet TI's concept of corruption is seriously flawed, and its understanding of corruption partial and self-serving (a subject that we cannot go into here at any length).

2.8 Political conditionality and a correct "policy environment" to attract foreign capital could include a pliant, subservient working class. Thus, Guyana was taken off the list of HIPC because the workers went on a general strike. So you have an absurd situation where the workers go to the streets because the system does not look after their interests and the Bank/IMF find this intolerable because it violates their notion of "good governance". This is really quiet absurd.

2.9 How has the HIPC addressed these serious problems of the original HIPC? The answer is that it has not. The figures put out by the Fund staff are still politically cooked figures to satisfy the requirements of the creditors rather than those of donors. I have talked to some responsible officials in both Mozambique and Uganda. They tell me, in confidence, that they have no choice but to accept HIPC because for various pragmatic reasons they are afraid of the donors, that they would be pleased if civil society would take the responsibility of challenging the donors on HIPC. Mozambique's official line, in any case, is "thanks for HIPC but we need 100% cancellation of debt." So although the WB/IMF staff might say that the enhanced HIPC is welcomed by the so-called "beneficiary" states, actually the latter welcome it only because when you are down on the floor crushed by the creditor on top of you, what do you do? Let me be very clear - at least the HIPC countries that I know DO NOT want HIPC; they want outright cancellation of Debt.

2.10 The second point is that Enhanced HIPC suffers from the same conditionality problem as the HIPC phase one. It is a leverage to push HIPC countries to adopt policy positions to facilitate the entry and operation of foreign capital in those countries. In other words, HIPC is achieving what the Multilateral Agreement on Investments (MAI) failed to achieve globally because of opposition from third world countries and peoples' movements. This is quite unacceptable. The policy positions are premised on the Washington Consensus assumptions that have been found to be based on false premises. I don't understand how the civil Society, indeed even the UNDP, can support a programme that is based on discredited Washington Consensus.

2.11 A third reason enhanced HIPC should be rejected is that it still does not address the basic issue of poverty in the countries involved. The WB/IMF have linked debt with poverty. This, as we said earlier, is a positive development. But they are doing the wrong connection. They think that by relieving part of the debt they would save money that the HIPC countries would be able to use for welfare activities. And they think liberalising their markets would make their economies competitive, and help secure FDIs. Both these assumptions are false. They want civil society organizations to help design the operation of this and to monitor implementation. This is like asking the civil society to pull the cart after the WB/IMF have put the cart before the horse. It is an absurd notion. It WILL NOT succeed. They are avoiding the issue of poverty in the developing countries. They are treating the symptoms.

2.12 Now the Bank/Fund want the debtor countries to work out national Poverty Reduction Strategy Papers (PRSPs), in order for them to qualify to receive HIPC support (Par.20 of UNDP Aide Memoir). But this is to be done "with assistance of WB/IMF". This will NOT WORK. The WB/IMF remain the "gate keepers" with a veto to disallow things they do not accept. If, for example, a HIPC country wants to put money on free health and free education and the WB/IMF staff say that this is not allowed under the "cost recovery" formula, then the debtor's will be subverted. There is something that the WB/IMF staff have never understood, or never learned from the SAP experience. It is this that no programme of theirs will ever succeed if the country has no political commitment to it. These are projects imposed by the Fund and the Bank. The responsibility for their failure is that the Bank and the Fund. Why should civil society be involved in an exercise they do not own In fact, the Bank/Fund are using the concept of "interim" paper on Poverty by the debtor countries to skip the process of involving the NGOs. The NGOs will be brought in only when the WB/IMF "gate-keepers" have done their work on the so-called "Interim" paper. Why should the NGOs come in at that stage? The whole thing smacks of the kind of manipulation that some of us witnessed to at Seattle.

 

3.0 Conclusions and Recommendations

3.1 It is clear that the enhanced HIPC is only enhanced cheating. I am afraid that is the only honest thing to say about it. It is high level cheating, high-level manipulation of the kind that took place at Seattle. This cannot be endorsed either by civil society or, in my view, by the UNDP. They must not be party to it.

3.2 The only way forward is to look at the issue of poverty and development with a fresh approach. The Washington Consensus must finally be declared dead and it should be buried for good never to be resurrected in any form or disguise. The poverty reduction strategies must analyse fundamental causes that create poverty and underdevelopment. The analysis must be done by the people affected, the people of the South, and be implemented by their governments with the help of civil society. The process must be owned by the people and accountable to them. Any other approach is top-down and will not carry the necessary political commitment, which is the principal reason why SAPs have failed.

3.3 The debt issue too must be looked at afresh. First it is necessary to look a the entire debt stock and not just debt service flows. It is easy to manipulate figures for debt service flows, and to make it appear as if a country is "sustaining" its debt when, in fact, the debt stock is increasing even further. One needs to look into the terms of trade between the export products and the imports of the highly indebted poor countries to understand why the debt continues to pile up. One needs to look into the financial transactions of these countries and analyse their impact on debt creation. The debt issue must be examined not from the creditor nations' viewpoint only (as the WB-IMF tend to do), but, principally, from the debtor nations' viewpoint. For example, the "moral hazard" that the creditor nations are concerned about in refusing to cancel debts must be challenged by the "moral illegitimacy" of the debt overhang that kills all development, and is the principal cause of perpetuating poverty in the South.

3.4 As I argue in a second paper, a careful analysis of the origin and character of the debt would show that there are 7-categories of "debts" that do not even qualify as debts. These are:

  1. odious debts (incurred by previous regimes in violation of human rights),

  2. honorific debts (incurred in fulfilment of UN resolutions),

  3. fraudulent debts (often even criminal),

  4. illegitimate debts (for fake experts and consultants and fake projects),

  5. debts unilaterally hiked by the lenders through interest rate and foreign exchange manipulations,

  6. fictitious debts (those without corresponding transfer of real assets to the South), and

  7. Washington Consensus (WC) debts (debts incurred because of WB/IMF misleading developing countries, which should be laid down at their doorstep).

3.5 We made 6-recommendations on how to move forward on the debt issue. These are that:

  1. The UNDP should help develop a methodology to conceptualise and measure inadmissible debts, much in the way it has developed a methodology to measure welfare for its annual Human Development Reports. This basically a conceptual and statistical exercise should be quite easy. As a rough guess, I would argue that the current over US$3 trillion debt would come down to a few hundred million dollars of legitimate debt. These latter should be paid, the rest stand cancelled automatically because they do not qualify as "debt" in any case.

  2. The United nations should insist on the implementation of its resolutions that deal with issues of human rights, development and social welfare and link these with the debt issue. It should take its own responsibilities seriously and assume some of the debts incurred by debtor countries in pursuance of UN resolutions. These "debts" do not belong to the debtor nations; they belong to the international community.

  3. In the same manner, the WB/IMF and other IFIs should take responsibility for debts incurred as a result of their misguiding developing countries on a false road to a development such as Washington Consensus. There should be a way of measuring the IFI debt to developing countries.

  4. HIPC should be neither extended to other countries nor deepened in the countries in which it is operational. It should simply be scrapped. It adds insult to injury. It is cheap, and rather cynical, trick to create the illusion that "something" is being done for "the poor " of the world. The resolution of the Jubilee Campaign of Latin American and Caribbean countries passed at Tegucigalpa in January 1999 and of the Jubilee South at Johannesburg in June 1999 unqualifiedly reject the HIPC initiatives as a means of perpetuating debt and not as a solution. (see appendices)

  5. The negotiating fora in which debts are discussed or negotiated should move away from the Paris consortium or any other creditor-controlled institutions such as the WB/IMF. Let the UN set up a special body where the issues are negotiated.

  6. The debtor governments should form regional or multi-national consortia to refuse to pay inadmissible debts. In this effort they can get the support of their populations provided they are transparent in exposing all illegitimate or fraudulent debts, and provided they are accountable to the people. They should, however, pay the debts that have been legitimately incurred, and that have resulted in actual transfer of net assets from North to South.

 

Appendices:

1. Resolution of the Latin American & Caribbean Jubilee Campaign, Tegucigalpa, Honduras, January 1999
2. Jubilee South Resolution on Debt, Johannesburg, June 1999