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

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Debt relief policy and practice by Belgium
other operations, hence resulting in reduced amount of aid available 80 . In that case, there is
no incentive whatsoever for DGD to engage in compensations: the development effect
(outcome, impact) is generated through the operation by ONDD/MINFIN, and it would be
highly irrational for DGD to spend non-additional resources on this. To worsen matters, to
the extent that the ODA-accountability part of debt relief is higher than its economic value,
again under this fixed ODA target hypothesis, total resources available for development
aid, and net cash flows to aid-recipient countries decrease.
The strict hypothesis of fixed budgets used here is no longer valid. From 2008 onwards,
DGD’s budget is determined as follows: the Council of Ministers decides on the ODA
target (0.5-0.6-0.7% of GNI); 60% of that target is allocated to DGD’s budget; and, on top
of that, DGD receives additional budgetary resources for non-ODA expenses that are put
on its budget, including the compensation payments on the 1991 financial reorganisation
loan. Disagreement remains, however, about the compensations required within the
framework of the 2001-2005 agreements.
This strict hypothesis of fixed budgets is usually not valid for another more indirect reason:
debt relief efforts, their generous ODA accountability, as well as an accompanying policy
to compensate ECAs such as ONDD, are typically situated in an environment where these
compensations are used in a complex political agreement to generate a substantial increase
in ODA. To some extent, this is also the case in Belgium, where debt relief will be an
essential element of reaching the 0.7% GNI target. Alternatively, the political compromise
can be to granting compensations for the aid budget, provided the promise to keep ODA at
a given, high level, such as is apparently the case in the Netherlands. We will make a more
detailed assessment of the compensation agreements in section 3.3.3.
Finally, and similar to the analysis made at the international level, from an efficiency
perspective, the decision to grant bilateral debt relief beyond the HIPC requirements, going
to 100% cancellation of eligible claims, and the multilateral debt relief interventions,
especially with MDRI, are the most efficient ones, as the economic value of it is close to
the nominal amount granted/cancelled.
3.3.2.2 Contribution to overall international effectiveness and relevance
Regarding the degree to which Belgium distinctively helped in delivering outcomes and
impact, we conclude that Belgium has been a supportive, but, overall, largely ‘reactive’
member of the international donor community in this field.
3.3.2.3 Coherence
At the international level, we concluded that recent debt relief interventions, most notably
the additional HIPC/MDRI debt relief, very much fits into the NAA, as it closely looks like
general budget support (GBS). This consequently also goes for the Belgian debt relief
interventions that are focused largely on HIPC countries and contributions to the
80 This constitutes, from a development perspective, an argument to remove these non-ODA compensations
from the DGD budget, in a further effort to make the DGD budget comprehensive and exclusive in
showing the development effort of the federal Belgian government, as expressed in ODA-accountability
terms.
Coming to Terms with Reality
multilateral component of HIPC and MDRI. This factual observation is particularly
relevant as the Belgian development cooperation is very reluctant with GBS, being still in
an experimental phase on budget support, preferring sector budget support. In fact, what
Belgium is doing through debt relief is granting a substantial volume of GBS, through
“delegated cooperation”, delegating the execution and monitoring to the IMF and the
World Bank.
At the Belgian level, there is no such thing as a Belgian debt relief policy, especially not
from a development perspective. This should not come as a real surprise as the major
parties involved, i.e. ONDD and to a lesser extent MINFIN, have, by design, no
development focus. Also, by nature again, it is difficult to design and execute a pro-active
debt relief policy, especially on debt relief granted by ONDD and MINFIN, when the
policy is designed and implemented largely at the global level, and, to the extent that the
historical Belgian claims exposure does not, or does no longer, match the current priorities,
with respect to recipient countries. In this respect, it is more by accident, than due to a
deliberate policy, that the overall debt relief effort can to a large extent be considered as
coherent. As discussed in section 3.1, this is largely due to the high level of activity on DRC.
3.3.3 An assessment of the intra-Belgian compensation agreements
Apart from the 7 types of debt relief interventions, DGD is also requested to participate in
compensating ONDD (and MINFIN) through the 1991, 2001 and 2005 agreements, as
sketched out in section 3.1.3. How can we assess these operations from the perspective of
our evaluation framework?
Before doing so, it is important to state that the subject of our evaluation is not to
determine whether ONDD is entitled to a compensation, and for how much; our
evaluation deals with determining how and when debt relief is and/or can be turned into
an efficient and effective instrument of Belgian development cooperation, justifying that
DGD budgetary resources are devoted to it. Each player has to be able to fulfil its own
specific task – interventions financed by the budget of development aid should be judged
from a development perspective, those of export insurance more from a foreign trade
perspective.
In deciding how to allocate a particular development aid budget, development aid officials
have a series of aid instruments at their disposal, including a range of debt relief
interventions. From a development perspective, spending part of the budget to compensate
ONDD is justified insofar as the development return to that spending is as high as with
other lines of activity. Compensations that are calculated on the basis of the needs of a
public organisation that also serves non-developmental policy objectives are by definition
second-best. Hence, the question we address here is a pragmatic one: when, as is indeed
the case here, a development aid administration (DGD) is invited to contribute to the total
government cost of curing what is a combined foreign trade and development aid problem,
what is the level of intervention (compensation paid from the DGD budget) that can be
defended from a development perspective? We will try to answer only that question.
Again, it is important not to confuse the determination of this appropriate level of
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