Coming to Terms with Reality. Evaluation of the Belgian Debt Relief ...

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Debt relief policy and practice by Belgium
3.3.1 The Belgian practice: pro-active versus reactive?
In any case, Belgium as a whole has been supportive from the beginning in joining the
international consensus that debt relief and cancellation was a necessary ingredient of
solving the problems debt overhang in severely-indebted lower income countries. More
particularly, on bilateral state loans, we already highlighted the decision to cancel a range
of bilateral loans to Toronto-eligible countries in 1990, early on. As such, for those claims,
debt relief was rather frontloaded, avoiding repeated reschedulings, leading, eventually, to
high nominal debt relief later on, e.g. in the HIPC Initiative 72 .
This quite pro-active Belgian stance in the Paris Club regarding bilateral loans was not
readily shared when considering the ONDD claims. In fact, overall, the behaviour of
Belgian regarding ONDD-claims in the Paris Club has been rather conservative, in the
sense that, when confronted with the policy space to choose between different options to
translate a common terms Paris Club agreement into the bilateral agreement, Belgium,
through the ONDD, often chose the option that kept the (nominal) value of claims at par:
in the beginning, when one of the three options provided (the so-called B-option) allowed
for a mere rescheduling at market terms, involving no element of debt relief in PV terms,
on frequent occasions, the bilateral agreement between ONDD and the recipient country
opted for this rescheduling option B, rather than for one of the other two options involving
an element of debt relief (in present value, PV, terms); this was the case until this option
was abolished in December 1991, when the Paris Club adopted the Trinidad terms 73 . From
then onward, confronted with the choice between debt service relief (long rescheduling
periods and concessional interest rates) and debt stock relief (a reduction of the stock of
debt), which do provide an equivalent amount of debt relief in PV terms, Belgium, through
the ONDD decision, systematically chose the first option, leaving the nominal debt stock
intact. In order to come to the - gradually increasing - required debt relief in PV terms,
where possible within the Paris Club framework, the ONDD used a policy of lengthening
repayment periods, reduced interest rates further (sometimes at 0%), and/or made
repayments of capital progressive over time 74 . On the issue of the particular choice
between debt service and debt stock relief, ONDD claims that it opted for the debt service
relief option because and when it was not allowed by the Belgian government to opt for the
debt stock option 75 .
The compensation agreement of 1991 (assessed in section 3.3.3) did offer DGD an
opportunity to become pro-actively involved in the debt relief field, through the swaps
window. DGD had shown interest in doing debt swaps before the agreement (by doing
72 As again highlighted in the next section, although important in nominal terms, however, in economic value
terms, this debt relief can be considered quite negligible.
73 In fact it was maintained as an exception for countries, essentially the United States, who did not want, or
legally could not, proceed with debt relief.
74 An extreme example is the Cameroon VI case, where part of the repayment of principal was stretched out
in the distant future as a bullet repayment to be made in 2124; see section 4.2.1.
75 Although the debt service and debt stock option have indeed to be considered equal in a PV sense, from
the perspective of Belgium, and the ONDD, the fact that accounting rules (and the concrete set up of the
compensation agreements) focus on nominal debt stock concepts made this option more interesting from
the ONDD perspective. See again section 3.3.3.
Coming to Terms with Reality
some autonomous swaps, even at full nominal value) and the agreement indirectly
provided a good opportunity to design an active debt swaps policy, for which Belgium
(together with e.g. Switzerland) was complimented internationally in the early 90s. The
swap window might have created additional debt relief for the recipient countries (or, as
stated earlier, rather frontloaded debt relief that would have taken place later on in the
context of HIPC), and additional ODA for Belgium. In principle this could be targeted
towards the priorities and partner countries of the Belgian development cooperation. 76
Furthermore, as debt claims could be acquired at a discount, a leverage effect seemed to be
created. Again, in the next section, we will assess this debt swap policy.
Did Belgium become more pro-active in the last decade, from the emergence of the
HIPC-initiative on? The Belgian representatives in the Bretton Woods institutions were
definitely active participants in the debate on the scheme, but design continued to be
dominated by the big international players, at the G7/G8 summits. Once accepted, Belgium
was again very supportive in implementing the scheme: it was fully supportive in the
implementation of the HIPC approach with respect to the bilateral claims in the Paris Club,
and engaged also in other debt relief interventions linked to the HIPC Initiative, such as
(voluntary) HIPC Trust Fund contributions, to support the implementation of the HIPC
Initiative by regional development banks. Furthermore, for Burundi, it provided a bridge
loan to allow the country to clear its arrears to the IMF, helping in fulfilling one of the
requirements in order to become eligible for HIPC treatment.
Furthermore, Belgium joined the EU proposal in deciding to go beyond HIPC Cologne
terms and move to full cancellation of its remaining eligible claims at HIPC completion
point. The same goes for the design and implementation of the MDRI. However, in this
case, most particularly, the Belgian Bretton Woods representation (and especially the IMF
representation) played a very active role, stressing the necessity for equal treatment for
some non-eligible countries, and advocated for a stronger ex-ante check before granting
actual completion point countries the extra debt relief 77 .
After 2000, Belgium decided on debt relief beyond the Paris Club agreements for two
countries: the Democratic Republic of Congo (DRC) and the Seychelles. The DRC had
reached its decision point in the framework of the HIPC Initiative in 2003. In the same
year, Belgium cancelled unilaterally more than 50% of the ONDD claims on DRC. This
decision was taken jointly by ONDD and DGD and went further than, but was still
conform to, the Paris Club agreement. DGD participated in this operation by allowing the
76 However, DGD claims that, in practice, it had very little leverage on choosing the countries on which to do
swaps. Typically a limited list of potential claims eligible for swaps was presented to DGD by ONDD.
77 Regarding the design of new initiatives, Belgium took one particular initiative when the then Prime
Minister Mr. Verhofstadt presented the PAIR proposal (see Berlage et al 2003) as a Belgian debt relief
proposal a.o. at the Monterrey ‘Financing for Development’ Summit in 2001.
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