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

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| 176 | Annexes Non-Paris Club bilateral creditors (China, Kuwait, Saudi Arabia) were expected to provide a treatment comparable to that of the Paris Club, with their contribution under the enhanced HIPC Initiative amounting to 13.2 million US$ in NPV terms. Kuwait accepted to contribute to the debt reduction at Completion Point. In 2001 China provided partial debt reduction on ‘standard terms’ and Saudi Arabia accepted a plan for payment of arrears in 2000. Commercial creditors were also expected to provide a treatment comparable to that of the Paris Club. In May 2001, the government proposed to the London Club to buy back its commercial debt (which stood at 810 million US$ on December 31 2000), under the International Development Association rules. After lengthy negotiations, an agreement was reached in May 2002 for the country to buy back its commercial debt at 14.5% of face value, with all the interest arrears being cancelled. The operation, costing a total of 44 million US$, took place in August 2003 with contributions from France, Norway and the World Bank which coordinated the operation. Cameroon contributed some of its own resources and 54 out of 76 banks involved agreed on the transaction. Participating commercial creditors thereby delivered their share of HIPC assistance. Five nonparticipating creditors, however, put pressure on Cameroon to settle claims by resorting to litigation in courts or under arbitrage. The total amount of claims entered was 340 million US$. (The value of the original claims was 53 million US$.) Two creditors obtained a - for them - favourable judgment granting them their claims for a total amount of 51 million US$ (IDA and IMF, September 2007, table 16). The Completion Point triggers set out in the Decision Point document included: (i) the preparation of a full PRSP and satisfactory implementation for at least one year; (ii) the maintenance of a stable macroeconomic environment; (iii) the satisfactory use of the budgetary savings from the interim debt service relief; (iv) the conclusion and satisfactory implementation of structural reforms supported by a PRGF loan (2000-2003) and the third Structural Adjustment Credit (SACIII); (v) the satisfactory implementation of governance and anticorruption measures, including in the areas of judicial and procurement reforms, budget execution, and the creation of regulatory agencies; and (vi) the satisfactory implementation of key social reforms, including the fight against HIV/AIDS. The Completion Point for Cameroon was initially set for May 2003. But in the meanwhile problems arose with the execution of the program under the PRGF (2000-2003). Moreover there were slippages in the area of public finance, especially in 2004, including a considerable decline in non-oil revenues and a rise in certain expenditures, accompanied by an increase in the State’s arrears due to domestic public institutions and private suppliers. 3.3 The Completion Point Macroeconomic policy implementation improved substantially in 2005, as evidenced by performance under the IMF Staff-Monitored Program (SMP) during the first half of 2005 and the start of a new PRGF-supported program during the second half of 2005. Efforts made in 2005 to correct fiscal slippages contributed to restoring the conditions for Coming to Terms with Reality macroeconomic stability and strengthening the foundations for sustained growth and poverty reduction. As a consequence, the IMF and IDA recognized that the Completion Point was reached in April 2006, three years later than originally planned. Box 3.2 Status of Triggers for Reaching the Completion Point: Trigger Status Poverty Reduction Strategy Paper Macroeconomic and Structural Reforms Adopted by the government in April 2003; Annual Progress Reports in 2004, 2005 and February 2006. • Maintenance of stable macroeconomic • Macroeconomic stability maintained although environment; implementation at times uneven. • Budgetary savings from debt relief used in accordance with criteria agreed upon; • SAC III concluded and reforms implemented. Governance and anti-corruption • Judicial reform • Public procurement system • Budgetary execution and service delivery Regulatory agencies for key sectors. Social sectors • Education • Health; • HIV/AIDS: progress to prioritize fight against HIV/AIDS. Source: IMF, Completion Point Document • Funds deposited in special account at BEAC; HIPC monitoring committee established; annual audits conducted. • Implementation of privatization component mixed; overall implementation satisfactory. • Laws on Chambre des comptes and on Constitutional Court adopted; operational in 2006/2007. • Reformed; • Over 2003-05 budget tracking and beneficiary assessment in the health and education sectors. Substantially implemented. • Construction new classrooms; teacher management decentralized. • Progress immunization coverage; national malaria strategic plan prepared and implemented. • Fight against HIV/AIDS prioritized in overall development agenda. Some of the experts we interviewed felt that Cameroon had only marginally fulfilled the conditions for the Completion Point and that the IMF and IDA had evaluated benevolently the country performance. We conclude this subsection with quantitative data on the debt forgiveness by bilateral and multilateral donors provided by Cameroon’s Caisse Autonome d’Amortissement. The data have been converted from FCFA to US dollars using the exchange rate 1 US$= 522.8 FCFA and are represented in figure 6. | 177 |
| 178 | Annexes Figure 6 Bilateral debt relief granted at Completion Point (billions of FCFA)* : Million of US$ 1.200 1.000 800 600 400 200 0 France Germany Austria Belgium Canada Debt Relief (Million of US$) Italy Source : Caisse Autonome d’Amortissements (C.A.A) ; * The abbreviation “ADF” stands for African Development Fund. Figure 6 shows that at Completion Point, Cameroon’s main bilateral creditors in terms of debt cancellation were France and Germany. Belgium came in fourth place, after Austria but before Canada, the United Kingdom and Japan. We also see how the debt relief received by IDA (under the MDRI) also represents a substantial amount. It is important to highlight that for France and for IDA, the debt relief granted at Completion Point will be spread over a certain amounts of years, 5 years and over 40 years respectively. Unitad Kingdom Debt relief by bilateral creditors covered two measures: debt relief under the HIPC Initiative as agreed at the Decision Point and cancelling of all remaining debt agreed upon by the Paris Club members. The second measure was quantitatively the most important as at the Decision Point the decision had been to cancel 27% of the debt in NPV. At Completion Point, the Paris Club countries decided to cancel much more than what was originally planned, cancelling up to 90% (under Cologne Terms) or even 100% of debt. Those Cancellations stayed in the HIPC framework, but some countries, such as Spain and France, decided to set up parallel programs. France, for example, decided to cancel 90% of the remaining debt under the HIPC Initiative (using the Cologne Terms), but set up a specific program for the remaining 10%, called the “Contrat de Désendettement et de Développement” (C2D), discussed in subsection 3.5. This program represents about 353 billion FCFA, which will be spent between 2006 and 2011-2012. Next to this Initiative, the debt relief under the HIPC Initiative and bilateral agreements granted by France at Completion Point is about 204 billion FCFA, which is why the total amount represented in figure 6 is about 557 billion FCFA. Danemark Japan Sweden China IDA IMF ADF Coming to Terms with Reality The debt relief by IDA, the IMF and the African Development Fund under the HIPC Initiative was topped up by the MDRI. Again, for these three institutions, debt relief under the Multilateral Debt Relief Initiative was far superior to that under the HIPC Initiative. 3.4 The Management of HIPC funds: In principle there are two different ways of managing the savings resulting from reduced debt service. The first one is to introduce those savings directly in the budget, letting the Government decide on their allocation. The second one is to create a separate account, to be credited by debt service savings. This may allow the creditors to participate in the allocation decisions and in the monitoring and allocation of their use. In the case of Cameroon the second mechanism was chosen by the Paris Club members, the multilateral creditors and the country’s Government. One of the conditions to attain the Completion Point of the HIPC Initiative was to put in place a transparent system to enable a good management, control and follow-up of the HIPC resources. To do so, the government agreed (i) to open an account at the BEAC and to transfer to it the amounts of the debt servive savings received under the initiative, (ii) to create a consultative and follow-up committee to manage the funds (“Comité Consultatif et de Suivi” (CCS) of the HIPC resources), and (iii) to organise annual audits of the projects financed through the HIPC initiative. In this subsection, we explain the functioning of the CCS and the financing of the projects by the BEAC account, and we discuss the audits made and the weaknesses of the system. Finally we look at the current situation. The special account at the BEAC was opened in October 2000, and was credited each year by the Government of Cameroon with the savings of debt service resulting from debt alleviations under the HIPC Initiative. As stated the account made it possible to separate the expenditures financed by debt service savings from the other budgetary operations, and facilitated their monitoring and audits. The CCS was created by decree 2000/960 on December 1, 2000. Its role was to make sure that the HIPC resources were used efficiently and equitably, and were invested in projects aimed at reducing poverty and improving governance, as specified in the PRSP. The president of the CCS is the Minister of Finance, the Vice-President is a representative of the Civil Society, and the committee has 18 members, including six ministers, three bilateral and two multilateral creditors, one representative from the private sector, three religious representatives, one representative from the microfinance sector and two NGO representatives. The decree does neither specify how the representatives are to be designated, nor the time they are supposed to serve Initially, each project had to be proposed separately to the CCS, which would then check whether the project satisfied the criteria for approval. But because this procedure was slow, the CCS changed the procedure: it would decide on a portfolio of about 100 projects at a time. Once the decision on the portfolio was taken parliament had to ratify the projects. | 179 |
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Page 115: Published by: Kingdom of Belgium Fe
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