Thursday, April 22, 2004
Francois Bourguignon, Chief Economist and Senior Vice-President Development
Economics, World Bank
And moderator
Zanny Minton Beddoes, Economics Correspondent, The Economist
DR. BOURGUIGNON: I would like to make a few observations on what the
Minister and the Undersecretary said, maybe one or two key points to start.
You asked the question at the beginning, did the HIPC initiative
live up to its promise, and you cited some figures showing that indeed a lot had
been done, and I would certainly not dispute this fact. I think that very much has
been achieved under this initiative, and we are seeing now countries going
through the completion point, getting some topping up. So the system is
The point I want to insist upon is that when we cite figures, the
$36 billion in the net present value that you indicated, for example, there may be
some ambiguity on that figure in the sense that it is a figure or it is a value which
appears in the books. It may not be the real value of the debt.
And in many cases, we know very well that debt relief is coming
because the countries, a debtor, would not have been able to repay, which means
that for the countries which are writing off the debt it is an operation which takes
resources within the countries, but the value of this process is very, very low. If
really the country would not have been able to repay at all the debt, the value is
zero. And if this debt was exchanged on the market, as is the case for middleincome countries, the value would be zero, and the bondholders would simply
have seen the value of their wealth going down.
So we must be extremely careful, when we look at the amount of
transfer which is equivalent to the debt relief operation, to make sure that it is not
strictly equivalent, and this is a point that the Minister made before. It is not
strictly equivalent to new resources being made available to the country. That is
the first point I want to make.
The second point I want to make, and this echoes what the
Undersecretary has said, that there were very good things which came in with the
HIPC initiative-- the PRSPs and, on the side of the International Monetary Fund,
the Poverty Reduction and Growth Facilities. These were to make sure that the
debt relief was delivered with some plans to make sure that poverty reduction
would take place more efficiently in the future in those countries. And from that
point of view, I think we may be satisfied.
Now, I want to come back on the issue of grants versus loans and
the issue of the multilaterals.
The first thing I want to insist upon is the fact that if we have the
debt crisis, if we have the issue of the debt relief in front of us, it is because the
growth performances of those countries have not been as initially expected.
So, when we had the question, is it enough debt relief, the answer
is certainly not. Because what this debt relief situation is pointing to is the fact
that there is a deficit, in terms of growth performances, among all of these
countries. And the real question we must address first is how could we make
sure that growth will pick up, in a sustained way, in those countries? If we could
be sure that, because of the aid or because of the action of developed countries
and developing countries, growth will pick up, then very much of the debate on
the debt today, on future debt, would simply disappear.
So the real issue is, above all, how can we make sure that growth
is returning to these countries after being absent for more than 20 years?
Now, on this grants versus loans issue, the point I just made is
important because, in the logic of the way in which multilateral organizations
lend money to the countries which are now in bad debt situation, there was this
idea that there would be growth. And the IDA loan, to which the Undersecretary
was referring to before, comes with terms which are rather variable, in the sense
that it is almost a zero rate of interest. The rate of interest essentially is the cost
of processing the debt, which is less than 1 percent. There is a 10-year period
during which there is no repayment, and then the maturity of the debt is 40 years.
And, initially, the idea was that this country would grow and there
would be no problem of repayment. What we observe today, however, is that
there was a real failure in terms of the growth of these countries, and then we are
in problems due to the fact that our anticipations didn't hold.
Now, what does that mean in terms of what could be done now?
We all agree that what is important is to make resources available to those
countries, provided that those resources are effectively used by the countries in
order to promote development and growth.
The problem is to know what is the best way of channeling those
resources. The Undersecretary said that the best way is to simply give grants and
to make sure that we will not again be in the kind of situation we are in today if
growth fails to materialize in the future. This is fine, and I think that we would
all agree with this statement. Let's wait until growth has picked up for those
countries to start getting into debt again.
But, in the short run, this raises issues because we have to
remember that with the previous system by which international institutions were
lending money, part of this money was coming back. I mean, not all countries to
which those institutions lend money, not all countries which received IDA loans,
had repayment problems. I mean, some of them--and many of them--repaid,
which means that, as of today, the way in which the total budget on which aid
resources can be made available to countries consists of two things: one, new
resources put in the system and, second, repayment by some countries which
benefited from loans in the past.
Now, if we move to the pure grant situation, then we have to
remember that progressively the repayment part of the resources on which we
can count today to help the countries will disappear. This basically means that
the contributions by donors will have to increase, and this is a principle that the
Undersecretary mentioned, which is a principle of continuing or constant-[Audio break.]
DR. BOURGUIGNON: --needed for the development of these
And I would simply like to finish by saying that this is so
important. We, in the World Bank, are advocating, we have been advocating for
a long time, for an increase in those resources which have to go to developing
countries in order to meet the MDGs. And we are constantly pointing out to the
international development community that, as of today, the effort is certainly not
sufficient, whether we include debt relief or not, it is certainly not sufficient to
reach these goals.
So these issues of including the net transfer of resources is
important. The point is to make sure that all donors are committed to that goal,
and then it will be possible to find what is the best way to achieve that goal.
What I want to make clear here, that on this reflow thing, when
we ask Niger or Ghana or Malawi to repay a part of the debt to the multilaterals,
this is not money going back to developed countries. This is money going back
to developing countries, because with the money that Niger or Ghana will pay
back, then it will be possible to lend or to give to another developing country,
maybe Ethiopia. So we have to think about the way in which IDA works as a
closed cycle. The money which is given back by one debtor is being used to give
grants or to give new loans to another.
So from that point of view we must be clear that debt relief is
reducing, if there is no more contribution being made by people outside the circle
who are the donors, debt relief is reduction of the total amount that can be
mobilized to do these development operations.
The reason why there was asymmetry between bilateral donors
and the multilateral donors that Collins mentioned before in the case of Malawi,
is simply because multilateral donors tried to preserve a part of this capacity of
our system to regenerate some resources to be lent to other developing countries.
Now, we may do well to question the fact that it is not a good idea
today for Niger or Malawi and Ghana to give back some money to be used by
some other country, but then you can see that we'll be in a difficult situation
because then we'll have to make very hard choices about who should be repaying
and who should not be repaying, and who should be benefiting from the
repayment made by some, and who should be being sacrificed because of the
repayments not being made by some.
So initially the arrangement behind the HIPC initiative was this
one, try to preserve a part of the capacity of this lending arrangement to some
extent to do some leverage on the contribution, new contributions, new resources
being made available by donors.
Now, we totally agree that this is something which is probably to
be analyzed again. We have to think about this--the way in which all this is
organized, but I don't think that we can simply dismiss this type of doing
business by IDA like that. I think the issues are much more complicated and
much more fundamental than this. Again, things would probably be easier if we
knew that we could count on more resources becoming available from donors.
One point maybe on Nancy's contingency facility, which I think is
a very interesting idea, and should definitely be studied in the same way, is the
functioning of IDA and this allocation between grants and loans should also be
analyzed and thought about. What I think is interesting is the fact that, as Nancy
said, it is a kind of extension of the topping up process, the extension going to 10
years. I'm not sure that I would be so much worried by the cost aspect, and at
least it is probably possible to get some idea about the cost by simply looking at
the properties of the processes behind export prices and import prices that the
Minister was talking about. It should be possible to get in a year the cost of this.
What I think is a more tricky equation is that I don't think that this
initiative would eliminate the need to monitor the debt and the need to have some
sustainability ratio somewhere. Say, okay, let's make sure that we are not going
too far in the other direction. And I don't think that this initiative would
eliminate the issue of what is best for a country; is it grant, is it loan, at some
point of time.
So, if this facility was available, this would certainly help, and this
would provide an insurance element that would be extremely useful, but it seems
to me that other issues would still have to be addressed.
And the next thing I wanted to mention, echoing the remarks by
the Minister and this new label of HIPC on several public goods in Ghana, I
think that it is certainly quite important that part of the problem we are facing
today, the fact that many countries who are in this HIPC situation at the same
time are in some kind of poverty trap, and we should try to be careful that HIPC
is not becoming a HIPC trap. And there is a real risk. I mean as the Minister
mentioned, it's not a very good thing to go to see the foreign direct investors and
telling them, "Oh, we are a HIPC country." This is not a very good label. So
again, the main issue is really growth. How is it possible to have growth picking
up, and what is important is to make sure that all the steps necessary for that are
being made within the country by improving the investment climate, which the
Minister referred to, which is something extremely important to attract foreign
investors and to make domestic investors a little more dynamic, improving the
policy in terms of delivery of educational and health services.
And on the other side, again on the side of the donors, making
sure that markets in developed countries are open to products from developing
countries, not only for manufacturing goods but also for agricultural products,
and also of course, as I said before, making sure that more resources, more net
resources are being made available.
I don't think there is any fundamental disagreement on this. We
all agree that net resources mean that people in the U.S., in France, in UK, are
simply contributing more to development.
On this issue of loans versus grants and then repayment, and
maybe overall reaction on the point made by Nancy, saying that grant is
systematically better on loans. On what basis? I mean if I know that a country is
about to grow at 2 percent a year, and if I'm able to raise money which will cost
me 1 percent a year, then I know that I can lend to that country and I know that I
can lend very much today to this country to accelerate the development process
to make sure that the country will get out of poverty as quickly as possible.
Now, if there are communities telling me that the same amount of
money I can raise through a loan will be made available by the donor
community, fine, there is no problem, because we're able to raise as much money
through grants as with loans. But until now this was not the case. And the
reason why we got into these loans and the reason why I agree, one--well, in
today's first, because we saw that it was a good thing to try to raise monies
through the lending system in order to increase our potential for intervention; and
second, it is true that the gross performances of many of the countries have not
been the one that we were expecting back in the '80s.
Now, is this a reason why we should simply forget about the
possibility of loans? I don't think so. It is certainly not the reason why we
should abandon the idea of writing more on grants, certainly not. I mean if it is
possible to write more on grants, we should do it. And I think that all the
arguments you have here simply are arguments in favor of increasing the
replenishment of IDA in the next round. This is all the main conclusion we can
get from that discussion.
Now, we agree that there is a problem today in Niger, in Malawi,
and this problem will be addressed.