Monterrey Consensus Review Session “External Debt”

1. Monterrey Consensus Review Session“External Debt” Hitoshi ShojiAdvisorDevelopment Assistance Strategy DepartmentJapan Bank for International Cooperation (JBIC)March 10th 2008

2. The Monterrey Consensus: External Debt 1. Vigorous and expeditious pursuit of external debt reduction 2. Introduce flexibility to HIPCs eligibility criteria 3. Consideration by the IMF and the WB of fundamental changes in countries’ debt sustainability situation cased by natural catastrophes, severe terms of trade shocks or conflicts 4. Putting in place a set of clear principles for the management and resolution of financial crises that provide for fair burden-sharing between public and private sectors and between debtors, creditors and investors 5. No detraction of ODA because of debt reduction 6. Innovative mechanism to comprehensively address debt problem of developing countries

3. 1. Delivered outcomes on Debt Relief • HIPCs and MDRI • Topping up • Decrease in debt-service, increased fiscal spaceand increase in poverty reducing expenditure • But, ODA flow diminished • Sustainable lending Source: “Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative -Status of Implementation” (IDA, IMF), 2007

4. 2. However, challenge remains • Deterioration of debt sustainability in the HIPCs benefited countries • Huge investment needs for economic development • Emerging agenda: fulfillment of large financing needs without further deterioration of the debt situation with inherited economic structure Source: “Heavily Indebted Poor Countries Initiative and Multilateral Debt Relief Initiative -Status of Implementation” (IDA, IMF), 2007

5. 3. Actions toward Emerging Agenda (1) Debt Sustainability Framework (DSF) • Increase of private flows to emerging markets • Partner countries’ vulnerability vis-à-vis the international capital flow • Attention needed by both public and private sector for the debt sustainability to avoid further external debt problem • Debt sustainability framework by WB and IMF: alignment by all lenders • Strengthening borrowers public debt management capacity

6. 3. Actions toward Emerging Agenda (2) Financing Gaps to Achieve MDGs • Huge investment needs to achieve MDGs “The MDG financing gap for all low-income countries will … rise to $135 billion by 2015.” (Investing in Development, Millennium Project, 2005) “Africa’s infrastructure investment needs will amount to around $20 billion per year…” (An Africa Action Plan, World Bank, 2005) “East Asia’s funding challenge is to resource estimated infrastructure needs of approximately $200 billion annually over the next five years.”(Connecting East Asia,ADB/JBIC/World Bank, 2005) • Trilemma; unchanged economic structure, large investment needs, insufficient domestic savings • Limited grant resources; use of loan unavoidable

7. 3. Actions toward Emerging Agenda (3) Examples of Harmonized Actions • “Joint Statement by Development Finance Institutions for Sustainable Debt Management”(AFD/JBIC/Korea Eximbank/KfW/Thailand NEDA, 2007) • “Enhanced Private Sector Assistance (EPSA) for Africa” • Minimal Interest Rate Initiative

8. 3. Actions toward Emerging Agenda (3) Examples of Harmonized Actions (cont’d) • OECD-DAC “Paris Declaration for Aid Effectiveness”: Ownership, Management for Development Results and mutual accountability • Public Private Partnership (PPP): critical for “mobilizing international resources for development” • Important role of public sector • Expansion of ODA concept (4) Catalytical Role of ODA

9. 3. Actions toward Emerging Agenda (5) Development Impact of Debt Relief • Necessary to constantly monitor its development impact

10. 4. Way forward Debt reduction has been achieved, but the question of how to satisfy the financing needs without further deteriorating debt sustainability remained to be solved. • Debt Sustainability Framework (DSF) • Harmonized Actions • Catalytical role of ODA • Monitoring development Impact of debt relief