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

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General conclusions and
recommendations
Coming to Terms with Reality
Debt relief is a chameleon. It can take on different colours, making it resemble several
other aid modalities, basically depending on the type of conditionalities attached. In order
to allow for a correct comparison with these other aid modalities (in cash flow terms), and
to judge its relative usefulness from a development intervention perspective, debt relief is
measured best at its economic value, i.e. the present value (PV) of all the debt service
payments which the debtor would have done on the debt relieved, in the absence of this
debt relief intervention. In theory, the ODA accountability of debt relief should follow this
same economic value criterion, but in practice it is not, grossly overstating it, and making
the ODA-accountability an additional element in the ‘politics’ of debt relief.
There is widespread consensus that international debt relief during the 1990s, i.e. pre-
HIPC debt relief, performed rather poorly on the dimensions of efficiency, effectiveness
and relevance. All this is not illogical, as pre-HIPC debt relief very much resembles
old-style project aid, and piecemeal and even larger scale debt relief in the Paris Club as
well as under the original HIPC initiative shares a number of features with aid disbursed
during the heydays of the Structural Adjustment Program (SAP) logic. Both project aid and
SAPs were heavily criticised, even by donor organisations themselves, for failing to bring
about the promised development results. Debt relief that mimics these forms of aid can
therefore not be expected to perform a lot better. Moreover, with respect to the impact of debt
relief on recipient country (budgetary) cash flows (‘fiscal space’), early debt relief efforts
typically involved debt titles that were not going to be repaid in the first place (hence having
an economic value close to zero), hence leading to negligible fiscal space effects .
In fact, the Belgian debt relief operations during that period mimicked international
practice. This is not surprising, as on the debt relief field, the degree of international donor
harmonisation has always been high, especially among those bilateral creditors (such as
Belgium) joined in the Paris Club: in order to ensure equal treatment, they agreed on
‘common terms’ of debt rescheduling/debt relief and then implemented these agreed-upon
common terms in bilateral agreements without a lot of policy space left. As such, before
the HIPC-Initiative, the Belgian debt relief interventions consisted of debt rescheduling/
debt relief operations through the Paris Club, both on its concessional (ODA-)claims
(bilateral loans, the so-called ‘State-to-State loans’), administered by the Treasury
(Ministry of Finance, MINFIN), as well as on its non-concessional (non-ODA)claims,
originating from export credits insured by the Belgian semi-public export credit agency
ONDD (Office National du Ducroire - Nationale Delcrederedienst). Belgium acted
pro-actively, frontloading some debt relief by cancelling MINFIN-administered
concessional bilateral claims on a series of low income countries in 1990 and 1994.
Development Cooperation (DGD) was as such not involved, as it does not administer debt
claims, but became a direct party from 1991 on, when it was forced to contribute to solving
the financial problems of ONDD, as a result of large scale non-payment and rescheduling
of ONND- held claims due to the debt crisis. From then on, DGD engaged in so-called
compensation payments to ONDD, amounting to 13.64 million EUR annually, in order to
help servicing the so-called ‘financial reorganisation loan’ of 1991, that was contracted by
the Belgian State to recapitalise ONDD. These compensations consisted of either partly
compensating ONDD for debt relief granted in the Paris Club, or, more actively, buying
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