The Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative (MDRI) remain the cornerstones of Norwegian debt relief policy. The achievements made from the inception of the HIPC initiative in 1996 up until today are remarkable. Norway will continue to ensure full financing of these schemes.
It is important to build on what works, and keep ourselves from reinventing the wheel. There are three topics regarding debt cancelation in the Norwegian government’s political platform. The first one is working for international principles for responsible lending and borrowing. Secondly, Norway intends to work for a new international debt resolution mechanism. Lastly, we conduct reviews and audits of Norway’s claims on developing countries.
Building on the HIPC initiative
The HIPC initiative is in a mature phase, but it remains imperfect. Many post Completion Point HIPC-countries are facing a renewed risk of debt distress. Post-conflict countries are struggling to qualify. There are still poor countries with a heavy debt burden not eligible for HIPC. There are HIPC-eligible Countries in fragile post-conflict situations not able to qualify.
The mix between domestic debt external debt and the mix of bilateral, multilateral and private debt is also changing: new emerging economies become more important and relevant creditors and the Paris Club creditors’ claims are becoming smaller, relatively speaking.
More should be done to prevent debt accumulation (Public Debt Management) and a more comprehensive framework should be discussed for poor countries with an unsustainable debt burden.
Responsible borrowing and lending is increasingly coming to the forefront as an important policy issue and will require close cooperation of both debtors and creditors. Norway has worked with UNCTAD for the last three years to make international Principles on responsible lending and borrowing happen. They were launched in Doha in April and endorsed by many countries.
Based on UN Principles, the Norwegian government has decided to conduct a review/audit of all our claims on developing countries through an international tender totalling USD150 million over 7 countries and 34 contract. The purpose is not to cancel debt, but to put the spotlight on responsible lending and on a creditor’s shared responsibility. Norway believes that debt cancellation should also be based on an analysis of how the loans were given, and not only on the analysis of how much debt the developing countries can handle. In other words, debt cancellation is not only about sustainability.
The way forward
We think the global community needs to attack the problem in a more comprehensive, fair, predictable and preventive way. The asymmetric power between the debtor and the creditors and the ownership of the instruments should also be discussed. Consequently, we welcome the discussion on a new debt workout mechanism.
However, we need to be realistic and pragmatic. The discussion of improvements to existing debt relief mechanisms aimed at the poorest countries must not be “drowned out” by the struggle to make the instruments better. One should maintain what works and not “throw the baby out with the bath water”. With this in mind, the missing links in the in the international financial architecture for debt restructuring are the following:
1. All types of debt should be systematically covered, including domestic debt and commercial debt .
2. The instrument should cover the period from an arrear clearance, and including a vulture fund operation where it is needed.
3. All creditors should be included. New emerging economies are becoming more important and the traditional creditors in the Paris Club countries smaller, relatively speaking.
4. Debt sustainability should not be the only yardstick. Not only how much debt a country can handle, but also an assessment of how the debt came about, should be included.
5. A more neutral judge – a less creditor driven restructuring. World Bank, IMF, Regional Development Banks and The Paris Club are all creditors.
Finally, debt cancellation is not sustainable, and it is not the last solution. The most important issues are those that can help to avoid debt distress: domestic resource mobilization, taxes, innovative financing, amongst others. With regards to debt however, attention should be paid to the important work done by UNCTAD on Public Debt Management and Responsible Lending. UNCTAD launched new Principles on Responsible Lending and Borrowing in April. Many countries have endorsed them. We invite you all to join us.
Per Kristian Roer was Senior Advisor in the Section for Multilateral Development Finance and Global Economy, Department for UN, Peace and Humanitarian Affairs at the Norwegian Ministry of Foreign Affairs at the time of writing; he now is Counsellor at the Norwegian Embassy in Jakarta.
This article was published in Great Insights Volume 2, Issue 1 (January 2013)
