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

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General conclusions and recommendations
beyond HIPC and provide 100% bilateral cancellation. As was the case with the enhanced
1991 agreement, also here, the calculation of the compensation is based on the notion of
‘economic value’, but since the discount is applied to the nominal value of calculation,
instead of the (typically lower) PV, the compensation that was negotiated was still higher
than the one deemed appropriate from a development perspective, as proxied by the
‘economic value’ of the debt claims cancelled defined in this evaluation. Partly as a result
of this, some of the claims under the new compensation agreements remain disputed and
unsettled as of now.
The field case study performed on Cameroon overall conformed the general results
described above. Cameroon is a typical country of repeated rescheduling in the Paris Club,
at ever growing degrees of debt relief incorporated, and an exit in 2006 when it received
full cancellation of its Paris Club eligible claims. Overall, debt relief, especially in the
recent period, was deemed both efficient and effective, but no robust sign of relevance
could be detected; moreover, the period of analysis is also characterised by a substantial
increase in foreign exchange revenues from exports, making full attribution difficult.
From the analysis, a few concrete policy consequences are drawn, both at the international
as well as at domestic level.
At the international level, it is observed that a number of HIPCs, after having received debt
relief that makes their debt sustainable, again experience problems to keep their debt at a
sustainable level in recent years. The current monitoring framework to assure this, a
combination of monitoring through the Debt Sustainability Framework (DSF), and
initiatives to promote responsible future lending and borrowing, although both very useful
and valid, can not in itself assure long-term sustainability, as also proven during the current
global international financial and economic crisis, because of the remaining vulnerability
of those countries to (negative) external shocks. As such, the international community
should be more pro-active in designing innovative schemes to increase the contingent
nature of debt claims, better matching debt service due with capacity to pay evolutions.
Second, in theory, aid accounting of debt relief should better resemble the economic value
of debt relieved. This would reduce the incentives of donors to use debt relief to inflate the
ODA figures, without increasing their real development effort. It would also help in
limiting compensation payments on debt relief granted on export credit claims, to the
economic value of their intervention.
Finally, regarding the type of debt relief interventions, the recent return to debt swaps,
deemed inefficient, is worrisome, unless these operations are engineered in a very careful
way and are scaled up in order to become more efficient.
At the Belgian level, from the analysis, the following policy consequences can be drawn:
First of all, the quality of debt relief interventions by DGD could be enhanced by curing a
number of Belgian ‘institutional’ problems in the field. The lack of sustained long term
Coming to Terms with Reality
expert capacity in the administration should be cured; furthermore, existing information
asymmetries can be cured by better information sharing. One effective and relatively easy
solution could be to include a member of DGD in the delegation to the Paris Club.
Regarding alternative types of debt relief operations, so far, Belgium has not engaged in
one particular type, i.e. funding the IDA Debt Reduction Fund, in which the funds are used
to help recipient countries buyback remaining commercial claims at high discounts.
Generally, this type of intervention is evaluated as highly efficient in its kind. As such,
Belgium might consider using this option in the future, e.g. in the context of DRC. In case
Belgium should consider using debt swaps again (debt-for-nature swaps, etc.), they should
be engineered very carefully (as ‘new-style projects’), so as to avoid the typical pitfalls of
this type of intervention.
Finally, this evaluation suggests that the development efficiency and coherence of the 2001
and 2005 agreement regarding ONDD claims can be improved when these agreements
would match better with the economic value of the debt cancelled. This can be achieved by
applying the discount not to the nominal value of the cancelled debt, but to its present
value instead.
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