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Madagascar |
ECONOMY
Madagascar will be relieved of $1.5. billion of its debt burden
Madagascar has just been included in the Highly Indebted Poor Countries’ (HIPC) programme as from this year 2001. The amount involved is US $1.5 billion — i.e. nearly $62 million per annum. This is to be deducted from Madagascar’s total of $4.358 billion in foreign debts. The welfare sector will profit from the amount saved.
The World Bank and the International Monetary Fund (IMF)’s Board of Directors, meeting together towards the end of last year, approved Madagascar’s application to be included in the HIPC programme. Hafez Ghanem and Gregory Dahl who represented both organisations, agreed that Madagascar fulfilled all the criteria of eligibility for the programme. Madagascar is listed as being among the poorest countries in the world, and in also heavily in debt.
According to the Bretton Woods Institutions (i.e. the World Bank and the IMF), Madagascar is performing well vis à vis its economy: Inflation is under control and the country’s economic growth is progressing. The Institutions acknowledge, however, that this growth has not yet been reflected in the people’s daily lives. At the grassroots, much remains to be done, for most people still live below the poverty line. However, if the present rate of economic growth continues (from 4% to 5% per year), the income per capita will be doubled within twenty years. At that rate, the population’s standard of living will be equivalent to what existed in the 1960s. Twenty years is a long time, but it’s better than nothing...
In 1999, a quarter of the State’s income went towards servicing its debt. Thanks to the HIPC, this burden will fall to 10% in 2004, and to 6% between the years 2010 and 2019. At the same time, the country will be saving $62 million per year, which previously would have had to be given in debt servicing. The amount saved will go towards improving the health service and general rural infrastructures, and will form part of the nation’s annual budget, which doesn’t happen in every country.
Methods
The IMF says that any debt reduction must result in reducing poverty. That’s the whole idea. But the Bretton Woods Institutions also say they can’t ignore such matters as good governance and openness in economic affairs.
It will take a year for Madagascar to show it is capable of fulfilling all the conditions necessary to profit from the programme. To achieve this, Madagascar needs to continue with its privatization and liberalization process; its economic stability and its fight against poverty. A national plan to combat poverty has already been drawn up and this has been highly encouraged by the IMF. The first outline of this plan was considered to be satisfactory, and the final text is currently awaited.
For many years, a considerable amount of money has been poured into Madagascar, but in spite of this, the country remains among the poorest in the world. Seven people out of ten live below the poverty line. One independent organisation said that if you want to look for a reason for this situation, you’ve only got to look at the country’s intolerable debt burden. Moreover, Madagascar’s donor nations and organisations seem to be completely ignoring the problems connect with poverty. On the basis of this report, the IMF changed strategy. (Since 1987, the IMF had been granting a standby credit of US $81 million [special drawing rights]; to which had been added a further US $24.4 million special drawing rights).
The HIPC
Many countries which have benefitted from the HIPC are in sub-Saharan Africa. The list of countries is: Benin, Bolivia, Burkina Faso, Cameroon, The Gambia, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Sao Tome e Principle, Senegal, Tanzania, Uganda and Zambia. The total amount of debt erased is reckoned to be more than US $32 billion, i.e. nearly 47% of these countries’ debts.
The HIPC was launched by the World Bank and the IMF in 1996, as a first effort to eliminate debt from the poorest countries and those most heavily in debt. In October 1999, the international community agreed to extend the initiative by increasing the number of «eligible» countries, and also by raising the amount of money involved and by speeding up the process.
Two stages are necessary so that «eligible» countries are able to profit from the easing of their debt burden. First of all, the debtor country must prove it can use aid wisely. This is shown by producing positive results for at least three years, and under Structural Adjustment Programme conditions. Then, once a country has been declared «eligible», it must work at reducing poverty. This must be done together with civil society and has as its main aim, to bring about growth in the economy. Madagascar is currently at this stage.
During this stage, the IMF and the International Development Association (IDA) grant temporary relief from the debt burden, provided the country continues efforts vis à vis the economy. This is done under the aegis of the IMF and the World Bank, within the framework of a Structural Adjustment Programme. Also, Paris Club and other bilateral creditors must give their «go-ahead».
At the end of the second stage, the IMF and the IDA will cover the remaining debt. At the same time, Paris Club creditors will reevaluate the debt situation of the country concerned. Other multilateral and bilateral creditors also have to contribute towards reducing the debt, following similar lines.
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