Mozambique : Paris Club, World Bank & IMF refuse assistance to a people in distress

April 2000 by Eric Toussaint


Mozambique, a country of 20 million inhabitants, has just suffered the worst floods for 30 years. The government estimates the cost of reconstruction at $250 million. While the industrialized countries point to the emergency aid they have provided to the victims, they are discreetly demanding that the Mozambican authorities repay the country’s foreign debt.

Mozambique, which is one of the poorest countries on the planet must pay its debt, money it could use to meet the basic human needs of its people. The country’s foreign debt amounts to $8.3 billion. The creditors fall into three groups:

1) the multilateral financial institutions (World Bank World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

/IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
), who hold $2.1 billion, or around a quarter of the total (the “multilateral debt”);

2) foreign states, who hold $4.3 billion, around half of the total (the “bilateral debt”);

3) private financial institutions, who hold $2 billion, or a quarter (the “private debt”).

So far as the multilateral debt is concerned, the World Bank (WB) and IMF, instead of simply canceling the debt that Mozambique owes them, have preferred to postpone some settlement dates and grant some new loans which the country must use to meet its repayment obligations.

The WB and IMF wish to ensure the continuation of their control over the future of Mozambique.

The bilateral debt, which represents more than half the foreign debt, is mostly owed to governments in the North - in order, Russia, France, Italy, Germany, Great Britain, the USA and Japan. Brazil is also an important creditor. When the Paris Club Paris Club This group of lender States was founded in 1956 and specializes in dealing with non-payment by developing countries.

of bilateral (government) creditors met on 15 March 2000, it failed to agree the cancellation of Mozambique’s debt. It only said that it would defer payments for a few months - but that the money would have to be repaid later.

“Our request was for total cancellation” said Mozambique’s Foreign Minister Dr Leonardo Simao. “We continue with that request and with that hope”.

As for the private debt, $2 billion is owed to banks in the North, who have no intention of canceling it. Human distress was already immense in Mozambique before the floods.

According to the World Bank, 70% of Mozambicans live below the threshold of absolute poverty. Life expectancy at birth is 46 years: 70% of the population have no access to health services; 60% of adults are illiterate; 78% of women are illiterate. Out of every 1,000 inhabitants, 3 possess a telephone connection (against 564 in France), 3 have a television (598 in France) and 0.8 a computer (150 in France).

The country cannot be criticized for spending too much on arms - the armed forces were reduced by 2/3 between 1985 and 1997 (one of the biggest falls recorded in the whole world). How, then, did Mozambique get into debt? It can be said without fear of contradiction that the country’s debt is the consequence of aggressions launched by the racist regime in South Africa in the 1970s and 80s. With the aim of overthrowing the progressive Mozambican regime (in the mid 1970s, Mozambique won its independence through a liberation struggle led by FRELIMO and thanks to the April 1974 revolution in Portugal), the apartheid regime supported a far right guerrilla movement (RENAMO) which devastated the country. Mozambique had to get into debt to organize its defense against this external aggression and attempt to rebuild itself.

After some years of strict application of the economic reforms demanded by the IMF and the WB, Mozambique should in principle have benefited from a cancellation of its foreign debt. To obtain this commitment of cancellation, the Maputo regime accepted a neoliberal policy which increased social inequalities and poverty. Some public enterprises were privatized. In December 1998, in the framework of the Initiative for Heavily Indebted Poor Countries Heavily Indebted Poor Countries
HIPC
In 1996 the IMF and the World Bank launched an initiative aimed at reducing the debt burden for some 41 heavily indebted poor countries (HIPC), whose total debts amount to about 10% of the Third World Debt. The list includes 33 countries in Sub-Saharan Africa.

The idea at the back of the initiative is as follows: a country on the HIPC list can start an SAP programme of twice three years. At the end of the first stage (first three years) IMF experts assess the ’sustainability’ of the country’s debt (from medium term projections of the country’s balance of payments and of the net present value (NPV) of debt to exports ratio.
If the country’s debt is considered “unsustainable”, it is eligible for a second stage of reforms at the end of which its debt is made ’sustainable’ (that it it is given the financial means necessary to pay back the amounts due). Three years after the beginning of the initiative, only four countries had been deemed eligible for a very slight debt relief (Uganda, Bolivia, Burkina Faso, and Mozambique). Confronted with such poor results and with the Jubilee 2000 campaign (which brought in a petition with over 17 million signatures to the G7 meeting in Cologne in June 1999), the G7 (group of 7 most industrialised countries) and international financial institutions launched an enhanced initiative: “sustainability” criteria have been revised (for instance the value of the debt must only amount to 150% of export revenues instead of 200-250% as was the case before), the second stage in the reforms is not fixed any more: an assiduous pupil can anticipate and be granted debt relief earlier, and thirdly some interim relief can be granted after the first three years of reform.

Simultaneously the IMF and the World Bank change their vocabulary : their loans, which so far had been called, “enhanced structural adjustment facilities” (ESAF), are now called “Growth and Poverty Reduction Facilities” (GPRF) while “Structural Adjustment Policies” are now called “Poverty Reduction Strategy Paper”. This paper is drafted by the country requesting assistance with the help of the IMF and the World Bank and the participation of representatives from the civil society.
This enhanced initiative has been largely publicised: the international media announced a 90%, even a 100% cancellation after the Euro-African summit in Cairo (April 2000). Yet on closer examination the HIPC initiative turns out to be yet another delusive manoeuvre which suggests but in no way implements a cancellation of the debt.

List of the 42 Heavily Indebted Poor Countries: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Comoro Islands, Congo, Ivory Coast, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Zambia.
, a debt cancellation of as much as 80% was to have been obtained. But the WB and IMF told the authorities in Maputo that in reality the country would in the future repay the same sum it had paid until then - around $100 million per year. In the Mozambican parliament, majority and opposition came together to adopt a resolution demanding the total cancellation of the foreign debt. In the weeks that followed, international NGOs, European parliamentarians and other pressure groups denounced the avarice of the WB and IMF. Under pressure, these latter announced a scaling down of their demands. Instead of $100 million, they would be happy with $73 million for 1999.

In June 1999, the G7 summit held in Cologne committed itself to cancel 90% of debts. In September 1999, at the annual summit, the IMF and the WB announced that henceforth they would give absolute priority to the reduction of poverty. Mozambique was in a very good position to accede to an additional lightening of its burden. Then a new inconvenience - to concede this latter the Bretton Woods institution added a new condition. From January 2000, the authorities in Maputo were asked to draw up a “Poverty Reduction Strategic Paper” (PRSP Poverty Reduction Strategy Paper
PRSP
Set up by the World Bank and the IMF in 1999, the PRSP was officially designed to fight poverty. In fact, it turns out to be an even more virulent version of the structural adjustment policies in disguise, to try and win the approval and legitimation of the social participants.
) in consultation with Mozambican civil society. The government replied that time was too short and demanded the implementation of the measures of debt forgiveness announced in Cologne and Washington. Just before the disaster caused by the flooding in February 2000, the WB and the IMF announced that they would grant no forgiveness until this “Poverty Reduction Strategic Paper” (PRSP) was drawn up.

But surely they would change their attitude after the drama of the flooding? Not in the least - instead of canceling their claims, these institutions decided to furnish aid in the form of loans which have to be repaid. It’s time to tell the WB, IMF and creditor governments that Mozambique has suffered enough - we demand the total cancellation of the country’s public foreign debt and the abandonment of the structural adjustment Structural Adjustment Economic policies imposed by the IMF in exchange of new loans or the rescheduling of old loans.

Structural Adjustments policies were enforced in the early 1980 to qualify countries for new loans or for debt rescheduling by the IMF and the World Bank. The requested kind of adjustment aims at ensuring that the country can again service its external debt. Structural adjustment usually combines the following elements : devaluation of the national currency (in order to bring down the prices of exported goods and attract strong currencies), rise in interest rates (in order to attract international capital), reduction of public expenditure (’streamlining’ of public services staff, reduction of budgets devoted to education and the health sector, etc.), massive privatisations, reduction of public subsidies to some companies or products, freezing of salaries (to avoid inflation as a consequence of deflation). These SAPs have not only substantially contributed to higher and higher levels of indebtedness in the affected countries ; they have simultaneously led to higher prices (because of a high VAT rate and of the free market prices) and to a dramatic fall in the income of local populations (as a consequence of rising unemployment and of the dismantling of public services, among other factors).

IMF : http://www.worldbank.org/
plans.

Evolution of Mozambique’s foreign debt (in billion of $):

1985: 2.9 | 1997: 5.9 | 2000: 8.3



cadtm.org
Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. Since the 4th April 2015 he is the scientific coordinator of the Greek Truth Commission on Public Debt.

CADTM

COMMITTEE FOR THE ABOLITION OF ILLEGITIMATE DEBT

35 rue Fabry
4000 - Liège- Belgique

00324 226 62 85
info@cadtm.org

cadtm.org