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One
problem that has been the focus of much attention and contention
over the years, with serious implications for the enjoyment of
human rights, is that of foreign debt. The debt ‘hangover’
of many developing countries, and particularly of the heavily
indebted poor countries (HIPCs), has not been resolved, despite
important and significant measures and initiatives adopted by
creditors at the national or multilateral levels. ‘Policies
of adjustment’ and efforts to integrate HIPCs into the ‘global
economy’ should be based on an examination of this phenomenon
as it relates to other development priorities. A United Nations
system that shares a common understanding of the problem, and
agrees on a set of coherent policy responses from a wider development
perspective, can complement the key role played by the Bretton
Woods institutions on the debt issue. It can thereby be of service
to creditor and debtor nations alike.
The external debt situation of the
developing countries today remains a source of serious concern.
The problems of the HIPCs, which are structurally rooted, are
far from being resolved, while other poor countries are also facing
a mounting debt burden as a result of worsening global economic
conditions. The dramatic situations of countries affected by war
and natural disasters require urgent assistance that should include
significant debt relief. A number of middle-income countries in
East Asia have overcome a first phase of an acute balance-of-payments
crisis, but still have to resolve their debt problems. Other middle-income
countries are encountering serious payment problems, as a result
of the contagious spreading of the Asian crisis and of the debt
default of Russia.
 The
situation has dramatically worsened since the beginning of the
1990s. It then looked as if most middle-income countries were
well on their way to graduating from the periodic rescheduling
of their debt, while the HIPCs and other low-income countries
could reasonably expect to clear their debt overhang problems,
with additional relief from both bilateral and multilateral creditors.
Not only has the expected debt relief for the HIPCs been slow
to come, but the recent decline in commodity prices is now affecting
the export growth prospects of many HIPCs and other commodity-dependent
countries, both among the low-income and middle-income countries.
If commodity prices remain depressed for several years, as predicted
by the World Bank, and/or exports fail to grow in volume, the
debt servicing capacity of these countries would deteriorate further
over the medium term. Already, some countries affected by adverse
developments in the external environment have been forced to reschedule
their debts, particularly with the Paris Club.
Beyond the immediate task of reducing
the excessive debt burden of developing countries, thought should
be given to the adoption of preventive measures to avoid unsustainable
public and private debt in the future. Those measures should perhaps
be aiming at ensuring responsible lending and borrowing behaviour,
notably through increasing the accountability and transparency
of borrowing and lending activities undertaken by public and private
economic agents. The debt management capacity in debtor countries
should also be strengthened.
Concerted action by the United Nations
As regards concerted debt-related actions
and technical assistance, the need for coordination is particularly
felt in the areas of debt conversion and debt management. As far
as debt conversion is concerned, agencies have shown interest
in channelling resources freed under debt relief schemes to development
programmes, notably in the social and human development sectors.
However, a number of considerations have to be assessed before
embarking on debt conversions and local currency swaps, in particular
the absorption capacity of debtor countries. It is essential that
coordination appropriate mechanisms to be put in place to ensure
effective debtor countries be fully in charge.
In the first instance, agencies
should assist debtor countries to develop national strategies
and projects for social and human development. Insofar as debt
conversion can bring additional relief and resources for development
purposes, debt swaps should be coordinated among bilateral and
multilateral donor agencies and be implemented at the initiative
of debtor countries. The costs of such operations should be carefully
evaluated, as they can be high in regard of the limited amount
of debt reductions that could be obtained through this route.
In connection with a multilaterally coordinated debt swap mechanism,
UNDP has proposed to assist debtor countries to establish the
National Partnership Facility to channel resources to national
programmes for social and human development. Through this facility,
UNDP in cooperation with and at the initiative of the debtor country,
can assist the latter to strengthen its capacity to design a human
and social development programme which could be financed partly
by debt relief and partly by new aid flows.
In order to disseminate and advocate a UN position on the debt
problems of developing countries, the UN can develop an advocacy
partnership framework, in cooperation with NGOs and other civil
society organizations, as well as sympathetic creditor countries.
Debt relief should be a once-and-for-all
operation. The best guarantee that debt will remain at sustainable
levels after the completion point is an improvement in domestic
public financial management, especially debt management. The UN
should play its part in strengthening the capacity of debtor countries
to implement an effective debt management policy. One lesson learned
from the 1980s debt crisis and the recent financial crisis is
that it is essential to have accurate information on the debts
incurred, including short-term private debt. Furthermore, an effective
debt manage- ment includes such aspects as elaboration of strategies,
institutional issues, legal matters, coordinating, registering
and channelling of information flows for operations and decision
making.
In view of the ongoing HIPC process
there is also a special need to ensure the concerned debtor countries’
ownership of debt sustainability analysis and ability to participate
as equal partners in the process. The capacity of HIPCs to apply
the methodology of debt sustainability analysis and appraise the
implications of debt relief should be strengthened by the full
exercise of civil and political rights in decision taking procedures
concerning debt and other issues.
UN technical assistance has already
played an important role in developing debt management capacities.
In the early 1980s, UNCTAD developed an effective framework analysis
for debt management and the computer-based debt management tool,
known as the Debt Management and Financial Analysis System (DMFAS).
This software, subsequently upgraded, is today installed in 50
user countries, of which 19 are HIPCs. The DMFAS Programme has
recently established an interface with the Debt Sustainability
Model developed by the World Bank for debt sustainability analysis.
UNDP has been the traditional partner and sponsor of the DMFAS
Programme; cooperating agreements have also been established with
other players in this area, such as the Commonwealth Secretariat.
The DMFAS Programme has built up
a unique position as far as capacity building in debt management
is concerned, and should be used as a focal point for actions
by the United Nations in this area.
There is an increased demand for
assistance from developing countries as well as countries in transition
in the increasingly complex area of debt management.
Abridged from
a report entitled “Finding solutions to the debt problems
of developing countries” (ECESA/99/2, May 1999), a product
of a collaborative and coordinated effort of the Executive Committee
on Economic and Social Affairs and presents a collective position
of the United Nations Secretariat in the economic, social and
related fields. The report is available from Maria Carreno at:
1-212-963-2290 or can be accessed via the website: www.un.org/esa/coordination/
ecesa/ecesa.htm
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