Suspend debt service payments, says UNCTAD Report

The 2001 United Nations Conference on Trade and Development (UNCTAD) World Trade and Development Report on Thursday called for the suspension of all debt service payments pending the full implementation of the HIPC initiative without additional interest obligations.

The report that had an overview by Dr Kwesi Anyemedu of the University of Ghana, Legon, said debt forgiveness could not be expected to be forthcoming swiftly despite the need for an immediate alleviation of the acute burden of the poorest countries.

"In this regard, the report made a number of observations on HIPC saying the annual savings on debt service provided through HIPC assistance for most HIPC countries are just modest and do not make any huge impact on these economies.

"Further there is a risk that relief from debt provided by HIPC may be accompanied by reduced new inflows, and that for 14 of the 17 African countries which have reached decision point, official flows fell considerably between 1996 and 1999."

The Report, which was launched simultaneously in Accra, Washington and other world capitals, said there is an urgent need to reduce the debt burden of the poorest countries.

The report also touched on reform of the International Monetary Fund (IMF) and the financial architecture, dollarisation and exchange rate mechanisms and the general effect of the slide in the US economy on the world economy.

It said there is a complication introduced into the HIPC initiative with the explicit linking of debt relief to poverty alleviation and the need to produce poverty reduction papers.

The report noted that a slowdown in the US, if not offset by strong growth in other major economies, is likely to have a negative impact on the developing world, pushing further down the plight of poorer countries.

"The impact on individual countries and regions, however, will depend on the relative importance of the trade and financial linkages with the US."

The report indicated that the impact would be most felt in Asia and not very much in Africa.

"Indeed for Africa as whole, the report expects that the rate of economic growth will pick up moderately, in part because of a likely improvement in terms of trade brought about by lower average crude oil prices in 2001, relative to 2000 prices."

The Report said the slowdown in the United States will also affect capital flows, and for developing countries as a whole, it is uncertain as to what the net impact would be.

"It points out that poor profits and low interest rates in the US could lead to a redirection, of capital, which could otherwise have gone back to the US, to some of the emerging markets," the report said.

On exchange rate mechanisms, the report examines proposals made for a better alignment of the three major currencies - the dollar, the yen and euro - as well as the kinds of exchange rate regimes required by developing countries to attain greater stability.

It said that the adoption of a single major currency such as the dollar may be desirable and has significant advantages. However, it would cause any country that does so to lose autonomy in monetary and exchange rate policy and can entail considerable costs in terms of growth, employment and international competitiveness.

The report said it is appropriate for debtor countries to agree with their creditors a voluntary standstill, or even as a last resort for debtor country to impose a unilateral standstill as it undertakes the necessary fiscal, monetary and exchange rate adjustments.

The report said the IMF needs reform to ensure that its mandate in the area of surveillance, conditionality and provision of international liquidity is carried to the letter.

The report called for a greater involvement of developing countries in the decision-making structures of the IMF and World Bank adding that developing countries should organise their efforts around common objectives.

Mr Boniface Saddique, Deputy Minister-designate for Trade and Industry, said Africa's growth rate of 3.5 per cent, according to the report, "is insufficient to tackle the rising poverty and declining health of the people."

He said the report gives a number of reasons for this situation, but noted that the international community must persist in helping Africa address her problems and become an effective player in the world economy.