Lecture

The US Role in Debt Relief and Development

By

Gregory Moore
Economic Officer, Abuja

June 2006
American Corner, Abuja

 

I am here to present what the United States Government is doing about debt relief for the most highly indebted countries in the world.

The United States Government is deeply committed to helping the world's poor. But, development depends on good, accountable governance and economic policies that will unleash sustainable private sector growth.

In March 2002 at the International Conference on Financing for Development at Monterrey, Mexico, the world articulated a new model for development that called on developing countries to establish sound economic and social policies, and for developed countries to support these efforts through an open trading system, private capital flows, and additional development assistance.

The United States believes that foreign assistance best supports those nations that make necessary political and economic reforms.

This is a presentation of the US Governments Role on Debt Relief and Development.

The US Role in Debt Relief and Development

In June 2005, the Group of 8 (G-8) major industrial countries (Canada, France, Germany, Italy, Japan, Russia, United Kingdom and the United States) proposed that the International Monetary Fund (IMF), the International Development Association (IDA) of the World Bank, and the African Development Fund (AfDF) cancel 100 percent of their debt claims for countries that met specific "Completion Points".

"Completion points" are in the context of the HIPC Initiative where the international community commits to assist countries achieve debt reduction.

As a result, under United States Government Leadership, the Multilateral Debt Relief Initiative (MDRI) was created.

The International Monetary Fund (IMF) recently announced its implementation of the Multilateral Debt Relief Initiative for 19 countries 17 of them under the Heavily Indebted Poor Countries (HIPC) Initiative.

• Benin,
  
• Burkino Faso,
  
• Bolivia,
  
• Ethiopia,
  
• Ghana,
  
• Guyana,
  
• Honduras,
  
• Cambodia**,
  
• Madagascar,
  
• Mali,
  
• Mozambique,
  
• Niger,
  
• Nicaragua,
  
• Rwanda,
  
• Senegal,
  
• Tajikistan**,
  
• Tanzania,
  
• Uganda,
  
• Zambia.

The HIPC Initiative provides substantial debt reduction to countries committed to economic, social and governance reforms.

The 19 countries will receive debt relief of about $3.3 billion from the IMF. As a result, these countries will be able to increase spending on health care and education to reduce poverty.

On December 17, 2005, the United States signed with Nigeria a Bilateral Debt Reduction Agreement based on Nigeria's Debt to the Paris Club. The United States portion of the Paris Club debt was approximately 3.4% or $US 1 billion and was with the U.S. EXIM Bank

The World Bank and the African Development Bank (AfDB) will finalize their level of debt forgiveness later this year. This bold initiative could result in the elimination of up to $60 billion of debt over 40 years.

The IMF's participation in debt reduction was a direct product of the United States Government (USG) economic and financial leadership.

The United States originally proposed the debt reduction initiative in 2004 to act on the President's commitment at the G7 Summit at Sea Island to support the poorest countries through debt relief and grant financing.

The President wanted to provide these countries with a way out from unsustainable debt burdens and a way forward towards a better future for their citizens.

Through the leadership of the United States Government, working actively with our partners in Europe and the United Kingdom, the multilateral financial institutions will provide 100% debt relief to qualified countries this year.

Thanks to our forceful intervention, the IMF Board found 17 out of 18 countries in the process eligible for immediate 100% debt forgiveness.

• Benin,
  
• Burkino Faso,
  
• Bolivia,
  
• Ethiopia,
  
• Ghana,
  
• Guyana,
  
• Honduras,
  
• Madagascar,
  
• Mali,
  
• Mozambique,
  
• Niger,
  
• Nicaragua,
  
• Rwanda,
  
• Senegal,
  
• Tanzania,
  
• Uganda,
  
• Zambia.

Another twenty other low-income countries will be eligible for the 100% forgiveness as they take certain actions.

• Cameroon,
  
• Chad,
  
• Democratic Republic of Congo,
  
• The Gambia,
  
• Guinea,
  
• Guinea-Bissau,
  
• Malawi,
  
• São Tomé and Príncipe,
  
• Sierra Leone,
  
• Burundi,
  
• Central African Republic,
  
• Comoros,
  
• Côte d'Ivoire,
  
• Republic of Congo,
  
• Lao PDR,
  
• Myanmar,
  
• Togo,
  
• Liberia, Somalia, Sudan.

The United States led the G7 countries in committing to offset foregone debt repayments by these countries to the World Bank and African Development Bank "dollar for dollar" over the duration of the canceled loans.

The United States Government secured "landmark" commitments by the multilateral development banks to increase the use of "grant financing" instead of loans. This is a significant "step" towards putting poor countries on sound fiscal footing over the long-term.

The United States has contributed over $1 billion to the Multilateral Development Banks to compensate them for HIPC Initiative debt relief costs and to maintain their financial capacity. Of this $350 million has been approved by the World Bank.

On top of this, the United States has provided $3.4 billion in (nominal) bilateral debt reduction to HIPCs over time, including debt relief both prior to and through the Enhanced HIPC Initiative.

The United States historically has provided nearly $40 billion, and the G-8 roughly $125 billion, in resources for IDA operations. This is a clear indication of our commitment to development.

 

The United States has made major contributions to development and Poverty Alleviation:

The United States is a full partner with developing countries in widening the circle of prosperity and achieving the Millennium Development Goals (MDG).

No other country can match our record.

We are the largest donor of official development assistance,

• including emergency humanitarian relief;
• the biggest provider of private charitable funding;
• and the chief source of private financial flows from imports,
• direct investment and remittances to the developing world.

The U.S. has pioneered innovative approaches

• to achieve sustainable economic development;
• and the ability to respond to humanitarian crises;
• helped stop or prevent conflict;
• supported reconstruction of war-torn countries.

The U.S. approach to development assistance builds on the Monterey Consensus, in which all nations, developing and developed, agreed that developing countries are the driving force of their own growth and development.

The Monterey Consensus further calls on developing countries to adopt sound economic and social policies that will help them mobilize resources from all sources public and private, foreign and domestic.

The United States and other developed nations undertook to support those efforts through an open trading system, private capital flows and additional development assistance

OFFICIAL DEVELOPMENT ASSISTANCE - OVERVIEW

• The United States is the world's largest donor of official development assistance (ODA). Since the year 2000, the United States has more than doubled Overseas Development Assistance from $10 billion to $27.5 billion in 2004 (OECD/DAC).
  
  
• During the same period, Oversea Development Assistance from the rest of the Group of 7 nations (G7, which also includes Great Britain, France, Japan, Italy, Germany and Canada) increased from $US30 billion to $US38 billion.
  
  
• The top U.S. ODA recipients of bilateral aid and debt relief in Africa are:
  
  
  • Egypt ($0.7 billion),
    
    
  • Ethiopia ($0.4 billion),
    
    
  • Sudan ($0.8 billion).

United States overseas development assistance to Africa more than tripled to $4.1 billion from 2000 to 2005, an increase of over 250%.

Development Aid to Nigeria - US$45.7 million through USAID

• Democracy and Governance - US$8 million
  
  
• Sustainable Development and Economic Growth - US$8 million.
  
  
• Basic Education and Health Care - US$28.1 million
  
  
• HIV/AIDS and Tuberculosis - US$1.6 million

Then there is the Presidents Bush's Emergency Plan for AIDS Relief (PEPFAR)

• US$ 198 has already been expended with an additional US$163 million for 2006

MAJOR USG DEVELOPMENT INITIATIVES

In 2005, President Bush committed to double assistance to Africa by 2010. He announced five initiatives to improve the lives of Africans, particularly the poorest and most vulnerable.

1. These programs address hunger and humanitarian emergencies;
2. improve education, especially for girls;
3. fight malaria;
4. enhance global competitiveness;
5. support women's empowerment.

• The U.S. has pledged $510 million in earthquake relief and reconstruction to the people of Pakistan.
  
  
• USAID and other U.S. government agencies launched a $656 million comprehensive Tsunami Relief and Reconstruction program.
  
  
  • When added to the funds spent by the Department of Defense emergency aid, ands USDA food aid , U.S. government assistance totals $841 million.
    
    
    • This makes us the largest bilateral donor to the tsunami response.
      
      
    • In 2004, the U.S. disbursed $1.4 billion for HIV/AIDS. We have remained the largest donor to the Global Fund for AIDS, Tuberculosis and Malaria(GFATM).

Millennium Challenge Account

• In 2004, President Bush established the Millennium Challenge Account (MCA).
  
  
  • It is built on the principle that foreign aid yields better results where sound economic policies and good governance promote an enabling environment for economic growth.
    
    
  • The Millennium Challenge Account is funded at $4.23 billion for 2004-06).
    
    We have made agreement or "Compacts" with eight countries at more that US$1.5 million.
    • Madagascar
      
    • Cape Verde,
      
    • Honduras
      
    • Nicaragua,
      
    • Georgia
      
    • Benin
      
    • Armenia
      
    • Vanuatu

President Bush's Middle East Partnership Initiative (MEPI) funds programs to support democracy in 15 countries of the Middle East and in the Palestinian territories.

• To date, the U.S. Congress has committed almost $300 million to this partnership over four years in addition to the bilateral economic assistance.
  
  
• We have taken the lead in mobilizing over $1.1 billion for Haiti's reconstruction and to improve donor coordination through the Haiti Donors' Core Group.

Multilateral Development Banks

The U.S. is the largest funder of the multilateral development banks. Historically, these banks have provided about $20 in development lending for every $1 that the United States has given.

Under the enhanced HIPC Initiative the MDB's will increase to about $30 for every $1 from all creditors toward the cost of debt relief.

Other Resources for Development

• Official assistance is dwarf by other resources that countries can tap for their development such as international trade, foreign direct investment, remittances and domestic savings.
  
  
• The United States provides more private financial flows to the developing world than any other country.
  
  
• The most powerful engine for development is trade. In 2004, the developing world earned $ 3.6 trillion from exports of goods.
  
  
• The United States is the leading importer from developing countries with total import of goods values at $661 billion in 2004.
  
  
• U.S. net imports from developing countries in 2004 totaled $394 billion, 70% of the G7 total. A net balance of US$267 billion in favor of developing countries.
  
  
• Foreign direct investment (FDI) drives economic growth;
  • by transferring knowledge and technology,
  • creating jobs,
    
  • boosting productivity,
    
  • enhancing competitiveness and
    
  • stimulating entrepreneurship.
    
    
• In 2004, developing countries received $232 billion in net foreign direct investment inflows, nearly three times what they received in official assistance.
  
  
• Remittances - the hard-earned money that workers send to family and friends in developing countries - amounted to some $126 billion in 2004.
  
  
• Of this, $30 billion came from the United States.
  
  
• Nigeria receives approximately US$12 billion in remittances, half of which comes from the United States.

Private Donations

Private American citizens, institutions and corporations are also generous to those in need.

• In response to the tsunami disaster, the total for U.S. private donations are estimated at more than $1.5 billion.
  
  
• According to the OECD, in 2004, U.S. NGOs provided $6.8 billion of the total $15 billion in private giving to developing countries provided by OECD member nations in 2004. (Note: This figure does not represent all charitable contributions.)

Trade and Development

• The Doha Round of the World Trade Organization represents the most important opportunity in a generation to enhance global economic growth and alleviate poverty.
  
  
• The United States is playing a leadership role.
  
  
• One on these areas is agriculture
  
  
  • The United States has made ambitious proposals across the board, including in agriculture.
    
    
  • The U.S. agriculture proposal is real and credible, requiring deep cuts in tariffs and the total elimination of trade-distorting subsidies -- -down to zero within 15 years -- resulting in a fundamental reform of our farm sector.
    
    
  • The United States is one of the most open markets, with average agricultural tariffs of 12% versus the allowed global level of tariffs of 62%.
    
    
  • Ninety percent of developing country agricultural imports enter the U.S. duty free.

AGOA

• Under the African Growth and Opportunity Act (AGOA), U.S. imports from sub-Saharan Africa increased by over 50 percent from 2003 to 2005.
  
  
  • Imports from this period from Africa under AGOA nearly doubled from US$ 25.5 billion about $US50 billion.
    
    
  • About 98 percent of all imports from AGOA-eligible countries entered the U.S. duty free in 2005.
    
    
  • From Nigeria imports more that doubled in the same period from US$10.4 billion to US$24.2 billion
    
    
  • This is against US exports to Nigeria of US$ 1 billion in 2003 and US$1.6 billion in 2005, with a net positive flows to Nigeria.
    
    
• As you can see the Unites States has demonstrated its commitment to helping developing countries benefit further from the global trading system, pledging to double annual "Aid for Trade" assistance from $1.34 billion in 2005 to $2.7 billion by 2010.
  
  
  • The United States is proud to lead the world in providing aid for trade aimed at helping to create the legal, administrative and physical infrastructures needed for developing countries to participate fully in the market openings we hope to achieve in the Doha Round.
    
    
  • Developing countries now need to prioritize trade in their development plans to maximize this opportunity.