||Debt burden weighs heavily on developing nations, says G-77
UNITED NATIONS, Oct 16 -- The Group of 77 has singled out rising debt burdens as one of the most critical economic issues facing developing nations.
Speaking on the subject of the "External Debt Crisis and Development," Ambassador Daudi N. Mwakawago of Tanzania, Chairman of the Group of 77 for 1997, said external debts continue to have an adverse impact on the economies of developing nations.
Addressing the U.N.'s Economic and Financial Committee on behalf of the G-77 and China, Mwakapugi said the external debt of net-debtor developing countries rose by about $110 billion or 6.4 percent in 1996, reaching over $1.8 trillion.
About 45% of this was owed by 51 developing countries classified as severely indebted by the World Bank, he said. It is noted that net borrowing rose moderately in Africa and Latin America but relatively higher in Asia in 1996.
However, the falling of Africa's share in the total debt does not show improvement but reflects the region's limited capacity to borrow new funds in the light of its substantial debt overhang, he pointed out.
Lending by private creditors was fastest growing component of long-term debt in 1996, rising by nearly 12 per cent. While private lending in Asia and Latin America grew by more than 10% in 1996, Africa continued to have limited access to private capital, registering growth of only 7% which was mainly to South Africa.
The share of private creditors in Africa's long-term debt remains a mere 25% compared to over 60% in Latin America and 45% in Asia. The high share of debt of African countries is owed to multilateral creditors, mostly the World Bank and International Monetary Fund.
"Clearly, we note with deep concern the critical conditions in the external debt of developing countries, particularly the African countries and the heavy and unbearable burden of debt-servicing that had led to the paradoxical situation where African countries find themselves net exporters of capital to the developed countries and international financial institutions," he told the Committee.
In addition, the deteriorating prices of primary commodities, insufficient foreign investment and declining flows of official development assistance to the region have adversely affected the ability of African countries to meet their development objectives as well as their other financial obligations, he added.
He also said that the debt overhang discourages investment and puts additional strain on the implementation of the structural adjustment and reform.
The development efforts of developing countries, in particular, the provision of essential services, including health, education and housing are severely hampered by the imperative need to set aside a substantial portion of their national budgets for servicing of external debt, which is in the magnitude of more than 30% and more than 20% of their export earnings.
Since mid-1980s, a series of international debt strategies and initiatives had been launched: Paris Club rescheduling agreements, Toronto terms of 1988, London terms of 1991, Naples terms of 1994 and Highly Indebted Poor Countries (HIPC). Initiative of 1996.
The two main elements embodied in these strategies included the adoption by debtor countries of macroeconomic stabilization and economic reform programmes supported by multilateral financial institutions and debt restructuring involving rescheduling and partial cancellation of debt service obligations.
In the early 1980's, Paris Club reschedulings provided the same terms to low-income and middle-income countries. That approach proved unsuitable to many debtors as increasingly it was realized that their problem was not that of liquidity alone but that of insolvency.
Toronto terms tried to redress the debt situation by providing a menu of options aimed at reducing the present value of the rescheduled debt service by up to one third. Only 20 countries benefited from Toronto terms by rescheduling almost $6 billion, he added.
In 1994, the maximum level of concessionality for low-income country debt was raised to two thirds of eligible debt servicing under the Naples terms. In the last two years, 16 debtor countries which signed agreements with the Paris Club obtained Naples terms.
Since their establishment, Naples terms have been granted to only 23 countries in 25 agreements for total restructuring of $9 billion. However, it should be noted that Paris Club mechanism covers bilateral official debt of most developing countries but does not apply to debt owed to non-Club creditors.
On commercial debt, the main international debt strategy for the middle-income countries has been the 'Brady Plan' which intended to contribute to the improvement of the debtors' creditworthiness, thus leading to their access to private financial markets.
Since its establishment in March 1989, the Plan has been applied to only 15 countries by eliminating 20% of their commercial bank debt, equivalent to $40 billion through choosing offers from the menu which include buy-back of outstanding loans at discount.
"Apparently, all of these initiatives have not gone far enough in alleviating the serious debt burden and debt servicing problems of developing countries. However, the most recent action by the World Bank and the International Monetary Fund of launching the Heavily Indebted Poor Countries Debt Initiative (HIPC) in late 1996 is an encouraging development," he added.
The objective of the Initiative to address the debt problem of the 38 low income countries in a more comprehensive way so as to help these countries reach a sustainable debt-servicing burden is, indeed, desirable.
While welcoming the Initiative, we recognize inherent limitations on accessibility to the debt relief measures for many of these low income countries.
"The main limitations relate to conditionalities and cross conditionalities and timeframe of six years for track record," he added.
"Clearly, the international community has not yet succeeded in putting in place an effective international debt strategy and action. What is needed is an effective, equitable, development-oriented and durable solution to the external debt and debt servicing problems of developing countries," he said.