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Quicker Debt Relief for Conflict-Affected Countries Pledged

By Brian Kenety

BRUSSELS, May 20 (IPS) - The international community has agreed to seek a moratorium on debt service payments for the world's most highly- indebted countries in "exceptional" situations - such as those plagued by civil wars, floods and natural disasters - and to facilitate access to debt relief for post-conflict countries.

"A historic decision, is what we call it," said Swedish trade minister Leif Pagrotsky, who served as president of the Third UN Conference on Least Developed Countries (LDC-III). "And that is on top of the present process going on to reduce debt for the least developed countries. This is a new step forward in that area".

Sweden now holds the rotating presidency of the European Union, which with the UN agency UNCTAD was co-host to the May 14-20 conference.

Since 1998, the World Bank and the International Monetary Fund have been exploring proposals to give special support to conflict-affected countries that could help them to qualify more quickly for the institutions' Heavily Indebted Poor Countries (HIPC) initiative.

These proposals, however, would require significant bilateral donor support, which thus far has not been forthcoming. For all the talk at the conference of the need for specific 'deliverables', rather than general and non-binding commitments, no concrete measure was announced in this area either.

The LDC-III Programme of Action was adopted on Sunday. In the external debt section of the text, the international community agreed to take action to "encourage creditors in a position to do so to consider a moratorium on debt service payments for LDCs in exceptional cases".

Gun-Britt Andersson, Sweden's State Secretary for International Co-operation, nevertheless took it as a positive development that the plight of post-conflict countries was specifically recognised in the text.

"Very many LDCs suffer from or are in conflict, in one way or another ... In the debt relief section [of the Programme of Action] special mention is made of the need to find ways of assisting to alleviate the debt of least developed countries in post-conflict situations that fulfil the HIPC criteria," said Andersson.

"Many of them are incredibly indebted and if they manage to overcome their crisis situations, they (still) have an enormous burden to handle," she said.

Andersson told IPS that the move was a pledge by the international community to use greater flexibility in providing relief within the HIPC initiative, on a case-by-case basis, but that no 'first candidate' had been identified.

"We did not deal with any such specifics. But the example used, is what we did for Mozambique (hit by floods) and Honduras (hit by an earthquake). I think it is very important, and this is inherent in the HIPC initiative, that you deal with each country on a case-by-case basis," she said.

"It is not feasible for us here, in a UN conference, to point to a specific case," said Andersson. "But we would like to have peace in the Congo (DRC), Sudan - these are the types of countries that one day, when they get out of crisis, then we have an enormous task to try to assist them to deal with the backlog of debt," she said.

HIPC eligible countries that are either currently in conflict or have been in recent years include: Angola, Burundi, the Central African Republic, D.R. Congo, Congo, Ethiopia, Liberia, Myanmar, Sierra Leone, Somalia, Sudan. Congo is the only country among them which is not an LDC.

According to an study by the Brussels-based European Network on Debt and Development (Eurodad) released here this week, the World Bank and the IMF currently have limited options to finance technical support to conflict-affected countries.

"Most countries cannot receive 'normal' support, as both the Bank and the Fund cannot issue new loans to countries that are in arrears," said the study, 'Debt Reduction for Poverty Eradication in the LDCs'.

Of the 41 HIPC countries, 31 are LDCs. In order to qualify for the initiative, a country must meet three criteria: it must be eligible for highly concessional assistance; it must have agreed to a rescheduling of debts on concessional terms with the Paris Club; and it must have an IMF Poverty Reduction and Growth Facility supported Programme (PRGF).

Currently, only the Central African Republic and Chad have an IMF programme in place. "The other countries are conflict-affected countries which are unlikely to qualify for the initiative in the foreseeable future," said Eurodad.

The IMF can give special support through 'emergency post-conflict assistance': loans that help the country to become eligible for PRGF assistance.

"This (PRGF) assistance is non-concessional, which could be compensated for by bilateral interest subsidies. However, thus far these have hardly been forthcoming," said the Eurodad study. The IMF has recognised that additional resources are needed to finance support to post-conflict countries. To this end the World Bank and the Fund had proposed that the IMF seeks "support from the international community" it said.

The EU has committed, with the World Bank, to co-finance the new Poverty Reduction Support Credits, which are based on Poverty Reduction Strategy Papers that countries must complete in order to qualify for the HIPC initiative.

The World Bank can also provide limited grant financing to countries in arrears, but only in situations where all creditors allow arrears accumulation and where a country has made "convincing steps towards social and economic recovery".

Considering these conditions, noted the Eurodad paper, "it is not surprising that no country has thus far qualified". (END/IPS)