FINANCE: Britain Favours Debt Relief For Former Soviet States

By IPS Correspondents Reprint | | Print |

Samanta Sen

LONDON, Aug 1 2001 (IPS) - The British government has called for an international initiative to provide debt relief to five former Soviet republics.

Groups campaigning to cut the debts of the world’s poorest countries have welcomed the move. But, they are asking, why not the other poor countries too.

International Development secretary Clare Short wants an international meeting to be held “to resolve the challenges to the ex-soviet countries Armenia, Georgia, the Kyrgyz Republic, Moldova and Tajikistan,” a spokeswoman from the Department For International Development told IPS.

“We want to increase the international community’s awareness of development challenges facing these countries and to look for practical solutions,” the spokeswoman added.

No date has been set for a meeting. But the initiative seeks to involve representatives from several member nations of the Organisation for Economic Co-operation and Development (OECD), the International Monetary Fund (IMF) and the World Bank.

The group of five countries is being treated as a distinct lot. The World Bank and the IMF jointly prepared a report on the debt burden of these countries in February this year. The report recommends several solutions and that has in turn let to other initiatives such as Clare Short’s.

“If this initiative is part of a package that addresses the concerns of these countries, that’s terrific,” Ashok Sinha from the Jubilee Debt Campaign told IPS. “But if this initiative can be run in the ex- Soviet bloc, why not adopt the same process for delivering relief in sub- Saharan Africa and parts of Asia.”

Short has suggested that one option could be to make these five countries a part of an initiative for other poor countries. But there is no decision on that yet.

The Jubilee Debt Campaign has continued from the Jubilee 2000 campaign run last year to cancel debt for the world’s poorest countries. The group is now asking for the British government “to be as politically dynamic with other poor countries as it is being politically dynamic with these ex-Soviet states.”

There is evidence that the debt cancellation process is failing in several sub-Saharan states, he said. “We are not trying to trade off one country against another but we would like Clare Short to pay attention to the others as well.”

The World Development Movement, another British NGO campaigning to cut the debt for the world’s poorest countries, and part of the Jubilee Debt Campaign said they were very disappointed at the lack of forward movement on the Heavily Indebted Poor Countries (HIPC) initiative at the G8 summit of major industrial nations last month in Genoa, Italy.

The HIPC Initiative is the first international response to provide comprehensive debt relief to the world’s poorest, most heavily indebted countries. It was launched by the World Bank and IMF in 1996.

“It is good that there is such keenness on debt relief for these ex-Soviet countries as we had the impression the Government thought there was no political capital left in debt-relief,” Alison Marshall, WDM campaigns officer told IPS.

Russia has just pledged to cancel the 572 million U.S. dollar debt owed to it by the most indebted poor countries, following commitments by other G8 nations.

Of the 41 countries in the HIPC initiative, procedures have been taken to half-way point for 23 countries. In the case of only two countries – Bolivia and Uganda – have procedures under that initiative been taken to completion point.

A total of 100 billion dollars was promised at the G8 summit in Cologne in 1999. Of this 2.6 billion dollars of cancellation has been received by Uganda and Bolivia. Altogether 13.2 billion dollars have been delivered since the start of the HIPC initiative.

But of the 23 countries to which some relief has been given, “16 are still paying more on servicing debt than on health and education,” said Marshall.

The selection of the 41 countries was challenged by the Jubilee 2000 initiative, which believed that 52 countries should be eligible under the initiative. “That whole selection is problematic because the eligibility calculations are not based on how much countries need for poverty reduction,” Marshall said.

The focus on the group of five ex-Soviet states follows the joint report by the World Bank and the IMF that paints a grim picture of the situation in these countries.

The report admits to an “underestimation of the difficulty of transition process for these small new nations.” The report points out that “the implementation of reforms was more difficult than expected,” and the terms of financing “insufficiently concessional.”

The new report also blames the Russian economic meltdown of 1998, the “adjustment of energy costs to market levels”, and armed conflicts in Armenia, Georgia and Tajikistan. It says Moldova and Georgia lost territory and that border clashes had occurred involving the Kyrgyz Republic and Uzbekistan.

In the best possible scenario of a growth rate now of 4.5 to 6.5 per cent and reduction of inflation to single digit levels, these countries still have a hard five years ahead. If the future is less rosy the World Bank sees “cash flow problems” for the next two to four years and “potential sustainability problems (in the) long-term.”

Much will depend on the economic conditions that will be placed on these ex-Soviet states in return for debt relief, says Marshall. “Lessons must be learnt from the experience of countries already in the HIPC Initiative – for many the Initiative is not providing a sustainable exit from the debt crisis.”