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Debt and Development From Monterrey to Doha and beyond

Debt and Development From Monterrey to Doha and beyond. Benoit Coeuré – Co-Chairman of the Paris Club. Doha Conference on Financing for Development Roundtable on Chapter V : External debt December 1 st 2008, Doha (Qatar). Outline.

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Debt and Development From Monterrey to Doha and beyond

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  1. Debt and Development From Monterrey to Doha and beyond Benoit Coeuré – Co-Chairman of the Paris Club Doha Conference on Financing for Development Roundtable on Chapter V : External debt December 1st 2008, Doha (Qatar)

  2. Outline 1- Implementation of the Monterrey provisions on external debt 2- New challenges and Paris Club commitments in the context of Doha

  3. 1- Implementation of the Monterrey provisions on external debt

  4. What has been achieved since Monterrey ?(1/6) Significant progress has been made in the provision of debt relief under HIPC/MDRI : US$ 99,3 billion committed to the 41 eligible HIPCs (NPV end-2007) US$ 57,5 billion already granted to 23 post-completion point HIPCs

  5. What has been achieved since Monterrey ?(2/6) Paris Club members have been major contributors to debt relief under HIPC US $ 11,4 bn delivered to 23 post-CP HIPC as part of HIPC assistance + US $ 7,4 bn beyond HIPC assistance on a bilateral basis = US $ 18,8 bn granted to the 23 post-CP i.e. > 50% of the overall assistance

  6. What has been achieved since Monterrey ?(3/6) Alleviation of debt burdens and enlarged fiscal space for poverty eradication • 90% cut in external debt stock for 33 post-DP • 63% cut in average debt service to exports (from 16,6% in 2000 to 6,1% in 2007) • 36% increase in poverty-reducing expenditure to Government revenue (from 34,7% in 1999 to 47,2% in 2007)

  7. What has been achieved since Monterrey ?(4/6) Paris Club members have been major contributors to debt relief outside HIPC too (Evian approach) US $ 69,4 bn of debt treated for 10 countries since 2003 of which US $ 47,8 bn cancelled

  8. Sustainable debt Kenya (Jan 2004) Gabon(June 2004)* Georgia(July 2004)* Dominican Rep. (April 2004 + October 2005)* Moldavia (May 2006) Grenade (May 2006)* Djibouti (October 2008)* Unsustainable debt Iraq (November 2004) 29,7 Bn $ cancelled Kirghiz Republic (March 2005) 124 M $ cancelled Nigeria (October 2005) 18 Bn $ cancelled Debt relief has been granted to 10 middle-income countries over the past 5 years within the Evian approach * those agreements included a “goodwill clause” indicating the Paris Club’s willingness to examine further debt restructuring options should the macroeconomic and debt sustainability outlook deteriorate

  9. What has been achieved since Monterrey ?(5/6) Following Monterrey recommendations, Paris Club adapted debt relief in response to major exogenous shocks : • “natural catastrophes” : 3 year deferral of all payments on debt service for Honduras and Nicaragua hit by Hurricane Mitch (1998), 1 year deferral for Indonesia and Sri Lanka hit by Indian Ocean Tsunami (2004) • “severe terms of trade shocks” : 3 year deferral of all payments on bilateral debt service beyond usual terms of treatment for Togo (June 2008), one of the 5 countries most severely affected by rocketing food and petroleum prices • “conflict” : 3-year deferral of all payments for Liberia (April 2008)

  10. What has been achieved since Monterrey ?(6/6) Monterrey : “debtors and creditors must share the responsibility of preventing unsustainable debt situations” Paris Club members use the Debt Sustainability Framework to make sure new lending does not exceed a country’s repayment capacity + Paris Club members support the OECD Principles and Guidelines on sustainable export credit lending (Jan. 2008)

  11. 2- New challenges and Paris Club commitments in the context of Doha

  12. New challenges ahead and Paris Club commitments • Full implementation of debt relief efforts (I) • Long-term debt sustainability (II) • Creditors’ coordination (III) Paris Club submission to Doha on external debt released in mid-September - general guidelines for all creditors on above listed topics - further immediate steps taken by the Paris Club along those lines

  13. Full implementation of debt relief effortsby all creditors is critical (1/2) • Participation of non-Paris Club creditors to HIPC still fall short of expectations : 40% for bilateral creditors, 33% for commercial creditors • Uneven participation harms efficiency of debt relief at the expense both of debtor countries and of creditors who “play fair” • Litigation is another form of free-rider behavior that needs to be addressed by the whole “creditors’ community”: • 50 litigators, 12 HIPCs targeted, claims worth 1,5 bn $, court awards 1,2 bn $ at end-2007 • countermeasures are in place but need to be enhanced

  14. Full implementation of debt relief effortsby all creditors is critical (2/2) Paris Club commitments • allow participation of non-Paris Club creditors to Paris Club debt restructuring negotiations on the basis of flexible arrangements • call on all creditors to refrain from selling claims to non-cooperative litigating creditors

  15. Debt sustainability remains a challenge, even after debt relief (1/3) Source : 2008 HIPC Status of implementation

  16. Debt sustainability remains a challenge, even after debt relief(2/3) • What does it take to lower risks ? • economic diversification • building debt monitoring capacity • increased transparency on debt flows by all creditors and on the debtor’s side... • sustainable lending practices by all creditors... • innovative countercyclical lending instruments (PTCC)

  17. Debt sustainability remains a challenge, even after debt relief (3/3) Paris Club commitments • respect the minimum concessionality requirementsto make sure that new lending is delivered in accordance with the debtor’s repayment capacity • call on all major creditors to use the DSF as a benchmarkto assess risks arising from new lending flows and take appropriate action in this regard • welcome changes to the DSF analytical underpinning if needed to adapt the tool to rapidly evolving financing patterns in low-income countries

  18. Build confidence through inter-creditor coordination (1/2) Paris Club commitments • strengthen outreach policy to get emerging lenders involved in a permanent dialogue on a broad set of issues related to debt • 2 outreach meetings in Paris in 2008 with 11 non-Paris Club sovereign creditors • Paris Club stands ready to “learn from alternative approaches and revisit its own principles and methods, where appropriate.”

  19. Build confidence through inter-creditor coordination : debt transparency (2/2) Paris Club commitments • call on all major creditors to set up a new information sharing framework to exchange data on stocks of claims and new lending flows • release of aggregate amounts of claims held by Paris Club creditors on foreign countries ↔ done on Nov. 26th, posted on the Paris Club website Total amount of Paris Club claims ≈ 330,2 billion $, of which : • ≈ 172,5 Bn $ of Official Development Assistance claims • ≈ 157,7 Bn $ of commercial claims

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