Makes loan waiver makes farmer Lethargic
1.1. Financial flows to developing countries
1The capital flows to developing countries are made up of private and public funds and have shown a steadily increasing overall volume in recent years. Official development funds have stagnated at around $ 70 billion since 1990; Private money flows have grown rapidly in the last two years to 170 billion dollars in 1995. Depending on the source of the information, there are definitionally and statistically justified differences of z. T. considerable extent. There are different approaches to measuring north-south financial flows. The main institutions are the OECD, the IMF and the World bank as well as the Bank for International Settlements (BIS).
The data collection of the four institutions is based on the specific mandate of the organization and its relationships with the members.
- The OECD * works with the “donor country” concept. The statistics of the OECD are based on the information provided by the countries in accordance with the DAC reporting systems (systèmes de notification du CAD) **. This includes the reporting system of the debtor countries (système de notification des pays créanciers - SNPC). For private financial flows, the OECD also relies on the information on banking activities from the BIS (Bank for International Settlements).
- The World Bank works with the concept of “beneficiary country” and reports the financial flows according to the countries reporting to it (“pays bénéficiaires / pays débiteurs” - système de notification des pays débiteurs - SNPD). The World Bank shows the debt statistics of the countries in the World Debt Tables.
- IMF statistics are based on information on members' balances of payments. World Bank and IMF are global organizations; they have 181 countries among their members.
- The BIS provides detailed banking statistics for the countries reporting to it and annually comments on them in the annual report. The members and shareholders of the BIS are the central banks of 41 countries. In 1996 nine new members were accepted: Russia, China, Hong Kong, Singapore, India, South Korea, Saudi Arabia, Mexico, Brazil. The enlargement means opening up the traditionally euro-centered institution to the emerging countries in Asia and Latin America. The bank is thus following the globalization of the financial markets.
In recent years, the individual reporting systems have been expanded to include the countries of Eastern Europe and the former Soviet Union, which does not reduce the statistical differences and uncertainties.
The OECD and the World Bank show statistically different information in the following areas:
- The two institutions do not show the same geographic coverage (the OECD has a wider geographic coverage than the World Bank).
- The OECD also records short-term bank loans and gifts for technical assistance, both of which are elements that the World Bank does not report. The World Bank argues that the free money for technical assistance is not recorded in the balance of payments and therefore is not shown in the financial flow; The OECD includes this money in the calculation for the financial flows with the argument that these represent a source of finance for the beneficiary country.
- Information on direct investment: the World Bank reports the investments as they appear in the recipient country's balance of payments; these also include direct investments between developing countries. The OECD figures only include direct investment by OECD member countries.
* In 1996 the OECD counted 26 countries and the European Union among its members. 21 of them are members of the DAC Development Committee.
** The DAC is the OECD Development Committee; it has 22 members, namely 21 nation states and the European Union.
2OECD, World Bank, IMF and BIS have set up a joint working group which carries out regular consultations on the different concepts for the statistical reporting of financial flows. In a joint publication, the four institutions explain their statistical models for collecting the data for the balance of payments, the debt situation and the financial flows1. The group is also working on the question of how direct foreign private investments and financial assets such as portfolio investments can be recorded more precisely in the future. In 1995, direct and portfolio investments accounted for more than two-thirds of net financial flows to developing countries.
3 In Table 5 we show the composition of the net financial flows according to the OECD.
1.1.1. Public financial flows are stagnating
4The public financial flows are mainly used to finance development in the lower-income countries, which receive little or no private capital. Official development aid has increased only slowly in recent years and reached around CHF 63 billion in 1995. Together with further official development financing, the public financial flow has stagnated since 1990 at around 70 billion dollars. Measured against GDP, the public financial flow to developing countries even fell in 1995 to the lowest average recorded since 1970 of 0.27% (OECD). In 1970, the UN members set a target of 0.7% for public development expenditure as a share of GDP.
5The GNP share of ODA for the group of Least Developed Countries (LDCs) is declining. In 1994 the share was 0.07% of the GNP of the DAC countries compared to 0.09% in 1990 - which is less than half of the 0.15% share of the
6Paris Conference on Least Developed Countries was held in Paris in 1990. The World Bank calls on donor countries to reverse this fatal trend for the poorest countries.
Table No. 5 Net flow of capital to developing countries (in billions of dollars at current prices)
a) Without cancellation of non-EZA debts 1990-1992.
b) Without the bonds issued by the banks (included in section III. 3.) and without guaranteed loans (included in the export credits section).
Source : OECD
7According to the World Bank, 36% of all official development aid flows to sub-Saharan Africa, 16% to Europe and Central Asia, 13% to South Asia, 13% to East Asia, 13% to North Africa and the Middle East, 8% to Latin America. 2
8 The reason for the real decline in public development funds is the ongoing recession with high budget deficits in the industrialized countries. A general tiredness of help - aid fatigue - and disillusionment with the poor effectiveness of aid is also cited as a reason for the decline3. The USA - formerly the most important financier of public aid in absolute terms - reduced aid by over 25% to 7.3 billion dollars in 1995. Japan has become the most important financier (14.5 billion dollars in 1995). France and Germany also outperformed the US with $ 8.4 billion and $ 7.5 billion, respectively. In 1995 Switzerland spent a nominal 1.084 billion dollars (925 million dollars at constant prices) on development cooperation compared to 982 million dollars in 1994. According to the OECD, this means a decrease of 6% in real terms.
1.1.2. Boom in private financial flows
9The private financial flows are made up of direct investments, international bank loans, international bonds, as well as private aid and development aid from private aid organizations. With a new record of $ 170 billion, private capital flows now account for two-thirds of the total flow of funds to developing countries. This dynamic is based on the expansion of many companies in the industrialized countries, which are investing abroad with the aim of better international competitiveness.
10 Private capital flows are concentrated on the economically interesting markets of the emerging developing countries. The 12 most important buyers of investments absorb four fifths of the capital flows.
11Direct investment and bank loans as well as international bonds show strong cyclical fluctuations depending on the economic situation in the investing countries. The expansion of direct investments to 90 billion dollars in 1995 according to the World Bank (including foreign investments from developing countries) and 60 billion dollars according to the OECD (only investments by OECD members) means new record investments. Bank lending has also expanded rapidly in the past two years, mainly short-term lending. They hit a record $ 70 billion.
12Private development aid has shown a constant amount of around 6 billion dollars in recent years.
1.1.3. Mexico crisis
At the end of 1994 Mexico got into an acute financial crisis after not all signs of an “economic euphoria” became reality. The high consumer and credit demand despite high interest rates contrasted with falling wages and rising unemployment. Investor confidence waned and led to a massive outflow of capital, which, together with the high level of outstanding debt, led Mexico to a liquidity crisis and a recessive phase. Massive support from the USA and the IMF helped Mexico to resolve the acute financial crisis relatively quickly. In the second half of 1995, significant capital returns to Mexico and other Latin American countries, especially Brazil and Chile, but also Argentina and Colombia, were registered again. The BIS sees this as a sign of the confidence that investors have regained in the stabilization policies of these countries. In its annual report, the BIS states that the Mexico crisis only slowed the dynamism of private capital flows for a brief period.
A tight financial policy and high interest rates in the economically dynamic developing countries on the one hand, and subdued economic activity and low interest rates in the industrialized countries on the other hand were the motor for the high capital flows, too Capital returns to developing countries, analyzes the BIS4.
15In Eastern Europe and the CIS Foreign direct investments are concentrated in Hungary (13.3 billion dollars at the end of 1995), Poland (6.8) and the Czech Republic (5.9), only then followed by Russia with 3.9 billion dollars in direct investments in 1995 (data from the Vienna Institute for International economic comparisons).
16 Regardless of the size of direct investment shown differently depending on the institution, this has shown a markedly increasing trend since the beginning of the 1990s. Due to the increasing globalization of production activities and the related liberalization of capital movements, the financial institutions expect a further expansion of direct investments in the next few years. This is due to the following elements: rapidly advancing globalization of production, increasing integration of developing countries into world trade, further improvement of economic policy in developing countries in favor of private activities. It is necessary, however, to restrict the global - euphoric - view: private capital flows, in particular direct investment, are still concentrated in a few countries. Four fifths of direct investment was concentrated in 12 “top countries” (China, Mexico, Brazil, Korea, Malaysia, Argentina, Indonesia, Thailand, Russia, India, Turkey, Hungary). More than two fifths, or 38 billion dollars, flowed into China alone in foreign investments.
1.1.4. World Investment Report
17 UNCTAD publishes an annual report on the development of investments (World Investment Report). According to this, the cross-border investment flow worldwide was nominally 208 billion dollars in 1993, 226 billion dollars in 1994 and 315 billion dollars in 1995. In 1994 developing countries registered 37% of the recipients of investment, which increased to 40% in 1995, for a share of $ 100 billion.
18The 1995 report analyzes the role of transnational corporations and competition for investment. UNCTAD estimates the number of transnational companies worldwide to be 40,000 parent companies and 250,000 foreign subsidiaries. Most foreign investments are made in the United States (23% in 1994); China attracts most investment among developing countries (40% in 1994). The continent of Africa remains uninteresting for investors with a total of around 3 billion dollars. Sub-Saharan Africa attracted just $ 1.8 billion in investment into the region in 1994, the same as New Zealand. North Africa saw investments of $ 1.3 billion, the same as Portugal. UNCTAD points to the untapped potential in Africa: According to UNCTAD, studies of subsidiaries of US multinationals in Africa have shown that the profitability of these companies working in Africa is higher than in other developing regions.
Table No. 6
Investment flows 1993-1995 (billion dollars)
Source : UNCTAD, World Investment Report 1996.
19The World Investment Report 1996 analyzes the relationship between trade and investment. The two areas are closely linked: the investments flow into markets with dynamic trading and vice versa. The globalization of relations does not mean all countries in the world, but rather a concentration on the economically dynamic regions of the world. The less developed countries remain excluded from this “globalization” and remain marginalized.
20 Foreign direct investment of around $ 100 billion, as shown in Table 6, has become the most important component of private capital flows to developing countries (54%).
21The Swiss companies are among the economic actors with very high foreign investments within the OECD; Switzerland has the highest per capita foreign investment rate. Between 1983 and 1994, Swiss investments totaled $ 64 billion abroad. Over 80% of this went to the OECD area, 13.9% to Latin America and 4.2% to Asia.
To secure private investments, a dense network of over 900 bilateral investment protection agreements has been developed between 150 countries, especially between industrialized and developing countries. Switzerland has concluded over 70 such agreements. In the 1990s, there was an explosion in investment protection agreements. Between 1994 and June 1995 alone, 299 agreements were signed worldwide. It seems to be time to agree on binding multilateral rules in the investment area - similar to the trade area.
Efforts are under way within the OECD to create a multilateral investment agreement. In the preparatory work, non-
24 OECD countries consulted, namely the “dynamic economies” which attract the most investment. The adoption of a multilateral investment protection agreement is planned for 1997. Non-OECD countries will also be able to join the agreement.
1.2. External debt
According to the World Bank, the external debt of developing countries reached a total of 2068 billion dollars in 1995, an increase of 8 percent over the previous year. Table 7 shows the composition and development since 1992.
Table No. 7
External debt figures1 of developing countries
(Monetary values in billions of dollars)
1 The World Bank shows here the external indebtedness of the developing and eastern countries reporting to it. In the 1994-1995 debt tables, there are 137 countries.
2 Provisional information.
Source : World Bank, World Debt Tables 94-95.
26An important figure for external debt is the debt quotient, i.e. the ratio of debt to export earnings. This has improved in the reporting period from an average of 163% in 1994 to 150%. This total information must also be put into perspective depending on the country categories. The economically dynamic region of East Asia has the best quotient.
27As tolerable measure In the opinion of the IMF and the World Bank, a ratio of 200%, a maximum of 250%, applies. Countries with over 200% are considered problem countries and should benefit from special debt relief.
28 Another debt indicator is that Debt service ratio, i.e. the ratio of debt servicing and export earnings. UNCTAD regards a rate of 20% as "economically justifiable", while the IMF and World Bank consider a rate of up to 25% to be justifiable. Individual economies, in particular countries belonging to the group of LDCs, show a much higher, and thus “economically unacceptable” quotient.
1.2.1. HIPC Debt Initiative
29 The World Bank and the IMF have launched an initiative for the group of countries with the abbreviation HIPC (Heavily Indebted Poor Countries), which are described as heavily indebted, with low incomes.Only the poorest countries (IDA-only countries), which are burdened with debt problems that cannot be overcome with conventional mechanisms, should be able to benefit from the HIPC initiative.
The initiative is based on the following guiding principles:
The country's entire external debt situation is included in the debt relief analysis (debt sustainability). The basic principle remains the case-by-case approach, i.e. each country is considered individually.
The country must have proven through its previous behavior as a debtor that further debt relief is being used well (good use).
If possible, the new measures should build on the previous ones.
The measures should be broadly based and, if possible, include all creditors (equitable participation).
Multilateral creditors retain their preferred credit status.
New financial resources which are supplied to these countries should be granted on concessional terms.
For these countries a significant easing of their debt situation is decisive for the development of their development potential. Measures to alleviate the debt situation in these countries were repeatedly called for at international conferences. At the World Social Summit in Copenhagen (March 1995), the “Copenhagen Declaration” called for further debt relief that would make sustainable development in Africa and in the LDCs possible in the first place.
32Many creditor countries, including Switzerland, have renounced their bilateral public claims against poor, highly indebted developing countries. In 1994 that debt waiver totaled $ 2.6 billion. In relation to the total debt of these countries of 212 billion
The leaders of the seven economic powers (G-7) drafted one at their summit in Lyon in the summer of 1996 Declaration on a new partnership with developing countries. This essentially includes the principle that the responsibility for promoting their own development lies with the developing countries themselves. For their part, the industrial powers want to make their development aid more efficient and concentrate it on the poorest countries. In Lyon, a more extensive debt relief was decided for these countries, which as Lyon Terms have been included in the debt menu: The bilateral debts of the poorest countries should in future be able to be canceled beyond the limit of 67% by up to 90% (the limit of up to 80% was then set at the 1996 annual meeting of the IMF and World Bank) The World Bank and the IMF are to support this process financially. According to the proposal already discussed by the IMF and the World Bank at the spring meeting in 1996, 7 to 8 billion dollars would have to be raised for this debt relief. The World Bank should provide 2 billion dollars (if necessary use the profits or reserves for this), and the IMF should give more concessional loans or "grants" to the poor and highly indebted countries selected for the HIPC initiative by expanding the ESAF. A minimum of 8 and a maximum of 20 poor, highly indebted countries with a debt ratio of over 200%, most of them in Africa, are eligible for debt relief measures. These are chosen on a case-by-case basis.
Today the World Bank and the IMF are jointly discussing approaches for further debt relief. The realization that there is only one strategy for the gentire school package (bilateral and multilateral Debt) of a heavily indebted country with the inclusion of all creditors brings the breakthrough, has prevailed. At the spring meeting of the IMF and World Bank in April 1996 and at the G7 economic summit in Lyon in July 1996, the principle of including multilateral debt in a global debt strategy was also approved.
1.2.2. Debt management
35The IMF makes an important contribution to debt management. Through the requirements of the IMF for structural adjustment with the aim of macroeconomic stabilization in the developing countries, it has a major influence on the financial and economic policy of the countries. An agreement with the IMF is a prerequisite for negotiating a country's debts before the Paris Club. But other “debt managers” represent the interests of their members. 1983 became that Institute of International Finance (IIF) was founded as a mouthpiece and representative of the creditor banks involved in the debt crisis in Latin America - the crisis broke out in Mexico in 1982. Five Swiss banks are also members of the “non-profit organization”, which now has around 200 banks. The analysis of the markets for investment and derivatives transactions occupies an important place in the work of the IIF today.
36 UNCTAD advocates the interests of poorer countries in the debt negotiations. It began as early as 1983 to provide systematic advice to developing countries on debt problems with technical IT support5. In particular, UNCTAD supports the developing countries in preparing for the negotiations of bilateral public debts in front of the Paris Club by installing a computer program with debt indicators. Originally the UNDP development program covered the costs. Several countries have also contributed to the funding, including Switzerland.
37The International Monetary Fund made loan commitments totaling a record $ 26 billion in the 1995/96 financial year. Of this, around $ 18 billion was effectively claimed. Mexico and Russia claimed the largest amounts of credit. The high credit outflow in recent years has required the IMF to strengthen its financial resources. Switzerland is resisting gold sales by the IMF to finance debt relief measures in the area of multilateral debt.
38 In terms of its function, the IMF is a “global development bank” which grants loans to its members, which include practically all countries. In the year under review, the number of IMF members increased to 181 countries with the addition of Brunei Darussalam and Bosnia-Herzegovina.
1.3.1. Record high IMF lending
In the 1995/96 financial year (as of April 30), the IMF rushed to Mexico's aid with extraordinary loans amounting to SDR 3.5 billion ($ 5.1 billion) and granted mammoth loans amounting to SDR 3.8 billion (SDR 5.5 billion) Billion dollars) to Russia. These two countries are the main reason for the high credit demands in Europe and Latin America. The financial year was also characterized by high credit demand from other countries; the main debtors were Argentina (SDR 0.8 billion), Zambia (0.7), Ukraine (0.5) and Algeria (0.4).
However, with disbursements of SDR 12.3 billion and repayments of SDR 7.1 billion, the net transfer of SDR 5.2 billion was lower than in the previous financial year with a net transfer of SDR 7 billion at the time. The financial movements on the accounts of the IMF are shown in Table 8.
41 It can be seen that the vast majority of IMF loans are in the form of stand-by loans, the IMF's classic loan instrument. The System Transformation Facility was used as a temporary instrument for the transition process of economies from plan to market; it is becoming less and less important.
1.3.2. Strengthening own resources
The high demand for credit causes the IMF's liquidity to decline and raises the question of additional resources for the IMF. The funding of the IMF is normally done through a quota increase. Another quota increase has been under discussion for a long time, but it is met with resistance, notably from the USA. The IMF management is relying more on a reallocation of SDRs, but there is no consensus among the members on this issue either. On the other hand, the discussion about a doubling of the General Loan Agreements of the Club of Ten (and Saudi Arabia as an associate member) is more advanced. The doubling of this so-called. General Arrangements to Borrow (GAB) would provide the IMF with 50 billion dollars, but reserved for the case of particular liquidity bottlenecks such as the extraordinary financial crisis of a member country (example in Mexico). To this end, the establishment of a parallel agreement (New Arrangement to Borrow - NAB) intended.
Table No. 8 IMF lending 1993-1996 (in billions SDR, as of April 30)
Source : IMF Annual Report 1996.
1.3.3. Avoidance of crises
In the wake of the Mexico crisis, the IMF has taken a number of steps to avoid and manage crises. In general, the surveillance of economic policy will be strengthened. In the future, particular attention will also be paid to capital movements. Compliance with demanding guidelines (Special Data Dissemination Standards) for the publication of economic and financial data, the countries should be given access to the capital market and allow better control.
1.3.4. Extended structural adjustment facility
44 The Extended Structural Adjustment Facility, ESAF, grants the poorest countries very cheap IMF loans (0.5% interest) with long waiting and repayment periods. These are bridging loans to finance structural adjustment measures. These loans are also subject to the usual IMF conditions, in particular the implementation of a structural adjustment program. The ESAF are financed with contributions from individual states and with returns from previous IMF loans. The sale of IMF gold is also up for debate in the future. An ESAF renewal will be necessary from 1998. From 2005, when large loans are due for repayment, the ESAF should become self-supporting. The IMF intends to make its contribution to the HIPC initiative by expanding the ESAF concessional funding.
1.3.5. IMF gold sales
The United States and England propose to the IMF to sell 5% of its gold reserves and thereby raise $ 2 billion in funds for additional debt relief measures for the poorest, heavily indebted countries. Germany, Italy, Japan, some Nordic countries and Switzerland are particularly opposed to this plan. A majority of votes of 85% is required for gold sales. The opposing countries together form a blocking minority on this issue and block the decision on the sale of IMF gold.
1.3.6. Switzerland's attitude as a member of the IMF
46Switzerland leads a group of countries at the IMF which, in addition to Poland, includes five countries in Central Asia (Azerbaijan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan). Together these countries have a voting power of 2.77% on the Executive Board of the IMF. At the IMF, Switzerland (Federal Council and National Bank), along with other European countries, are opposed to gold sales by the IMF. The Association of Aid Organizations supports the IMF's gold sales.
1.4. World Bank Group
47The World Bank and the International Development Association (IDA) reported loan commitments of $ 21.4 billion in the 1996 fiscal year (ended June 30) (previous year: $ 22.5 billion). The largest buyers of World Bank loans were again China and India (together 5 billion dollars). The proposals for a debt strategy that were first brought up for discussion by a working group of the World Bank, which should follow an overall approach and thus also include multilateral debts, were widely discussed in the reporting year, although no resolutions have yet been passed. In addition to lending, the World Bank publishes important analyzes and reports on general development problems.
Table No. 9 Flow of resources on World Bank accounts 1993-1996 (figures in $ billion; closing as of June 30th)
1 Approved World Bank loans in fiscal year 1994/95.
Source : World Bank annual report.
Table # 10
The biggest borrowers
Approved World Bank loans in fiscal year 1994/95.
Source : World Bank annual report.
48 Of the loan commitments, $ 14.5 billion goes to the World Bank and $ 6.9 billion to IDA. Table 9 shows the composition of the World Bank's resource flow; Table 10 shows the ten largest borrowers.
49 The World Bank loan commitments are regionally distributed as follows:
25% East Asia / Pacific
14% South Asia
21% Latin America
13% sub-Saharan Africa
20% Europe / Central Asia
7% Middle East and North Africa
The 50 largest individual customers were China ($ 2.97 billion), India (2.08), Russia (1.82), Argentina (1.51) and Indonesia (0.99). For the first time, Vietnam is one of the major borrowers ($ 502 million).
1.4.1. New comprehensive debt strategy
51 The World Bank has taken the initiative to find further solutions to the debts of the poorest countries (see HIPC initiative above). Your contribution to the initiative includes the creation of a HIPC Trust Fund to be endowed with $ 11 billion. The new fund will be managed by IDA. Heavily indebted poor countries should be able to fall back on this fund for 15 years to pay their (remaining) debt servicing.
The amalgamation of the facility from bilateral and multilateral sources should not threaten the creditworthiness of the World Bank and the IMF. According to the World Bank, the prerequisite for access to the trust fund should be the implementation of economic reforms with the central goal of overcoming poverty and environmental sustainability.
In connection with the new debt initiative for the HIPCs, the World Bank (and later also the IMF) even speaks of a waiver of claims on multilateral debts - so far an absolute taboo.
54Oxfam International, Eurodad and other private development organizations launched a campaign to support the World Bank proposal in the run-up to the 1996 spring meeting at which the proposals were debated, which was also taken up by Swiss NGOs.
55 IDA will play an important role in the implementation of the HIPC initiative. Selective IDA lending and additional IDA allocations are intended to lead the HIPC countries out of the debt trap to an acceptable level of debt.
1.4.3. World development report
56The World Development Report 19966 takes stock of the first six years of reform policy in the countries of the former Eastern Bloc as well as China and Vietnam, which have now become important recipients of World Bank loans. A comparison between China and Russia shows that the starting conditions for a reform of all structures - in addition to the commitment and will to far-reaching reforms - are decisive for success. In Russia, a quarter of economic production was in the military complex; 90% of the working people worked in the state sector, 13% in agriculture. The Chinese state employed 19% of its workers in the state sector and 71% worked in agriculture. Russia went through a painful restructuring of the cumbersome and bloated state apparatus, while in China the booming private companies directly absorbed workers from the downsized agriculture. The problems were and are enormous: Privatization needs efficient markets, requires the enforcement of property rights, an increase in corruption and crime, increasing poverty calls for a good social policy, etc. Overall, however, the World Bank's balance sheet for Eastern Europe has so far been positive.
1.4.4. World Bank and the Environment
57 The World Bank opened an environmental department after criticizing numerous large-scale projects it financed or co-financed with negative social and ecological consequences. It requires environmental impact assessments and has become more environmentally conscious in general. It has its environmental policy in the report, among other things Mainstreaming the Environment (September 1995) explained. The World Bank is working on one green classification system. The new country classification system includes the environmental and human capital available to a nation. The inclusion of these parameters leads to a new welfare assessment. The World Bank defines development as ecological
58sustainable when future generations have more environmental and human capital at their disposal than those living now. This means investing in particular in environmental and training projects - especially for women. 7
591996 the World Bank comes under fire again from environmental and development organizations, which criticize the planned World Bank financing of a coal-fired power plant in India. The planned coal extraction would result in the resettlement of 11,000 people. The planned resettlement project offers people neither land nor work and violates World Bank principles. This line of reasoning leads the Berne Declaration8. In general, the World Bank is called upon to include global environmental aspects in its credit policy to a greater extent than before and, in particular, to promote alternative energies such as solar energy in developing countries.
1.4.5. World Bank reforms
60Reforms are intended to increase the efficiency and quality of World Bank work. President James Wolfensohn, newly elected in June 1995, attaches great importance to the reforms. According to Wolfensohn, it is a matter of “breaking the bureaucratic encrustations and creating a results-oriented corporate culture that pays more attention to the needs of developing countries” 9.A first step in this direction should be the expansion from three to five managing directors with new, clearer areas of responsibility.
1.4.6. Development strategy
61 The World Bank is revising or developing its development strategy, with social development being a high priority. This includes poverty reduction, participation of civil society in development, contribution of the private sector to socially and ecologically sustainable development. Another focus of the conceptual work is the elaboration of a development strategy for Eastern Europe and Central Asia.
1.4.7. Switzerland's attitude
In May 1996 the new President James Wolfensohn was in Switzerland. The federal government and private development organizations were able to bring their concerns to the president. Switzerland is represented on the Executive Board. It supports the World Bank's initiative in the area of multilateral debt and the deeper integration of environmental concerns into the World Bank's lending.
1.5. Annual meeting of the IMF and the world conference
63The IMF and World Bank hold their joint annual meeting each autumn in Washington, the headquarters of the two organizations, at which important issues affecting both institutions are discussed and decided. At the 51st annual meeting from 1-3. In October 1996 the decision on the new joint debt initiative for the benefit of the poorest, highly indebted countries was the most important item on the agenda.
The two steering bodies, the Interim Committee of the IMF and the Joint Development Committee of the World Bank and IMF, hold their meetings before the annual meeting to discuss the most important items on the agenda, as do the Club of Ten (G-10), the Group of Twenty-four (G-24) and the G-7 (see frame text).
65 Delegations from all 181 member countries took part in the 1996 annual meeting. The most important item on the agenda was the decision on the new debt initiative to relieve the poor, highly indebted countries. Other important topics were the doubling of the General Loan Agreement (GAB) between the Club of Ten and the IMF and the joint priorities of the two Bretton Woods institutions in the near future. Together, the two institutions want to fight corruption and strengthen the financial sectors in developing countries.
1.5.1. Debt initiative
The debt relief approved at the annual meeting provides that the Western creditor states, within the framework of the Paris Club, supported by the G-7, the IMF and the World Bank, the loans and the associated interest burden of the most heavily indebted poorest countries (Heavily Indebted Poor Countries , HIPC) to a "sustainable" level. In addition, the bilateral debts within the framework of the Paris Club can in future be canceled in the amount of up to 80% of the current debt stock (up to now 67%). With this, the IMF and World Bank confirm the recommendations of the G-7 made at the economic summit in Lyon in the summer of 1996 regarding debt relief for the HIPCs. Up to 20 countries are eligible, whose debts exceed 200-250% and whose interest obligations exceed 20-25% of export earnings. These countries include Uganda, Mozambique, Zambia, Ivory Coast, Ethiopia, Tanzania, Mali, Bolivia, Guiana, Nicaragua. A case-by-case approach is adhered to. Around 80% of these countries' debts are bilateral and 20% multilateral. Estimates of the cost vary widely. According to World Bank calculations, this can amount to as much as $ 7.7 billion.
IMF and World Bank bodies, and Switzerland has a say
Executive Board: The IMF and World Bank both have a 24-seat executive body. During the accession negotiations, Switzerland made taking a seat in this executive body an important condition for accession. Thanks to the formation of groups together with Poland and four Central Asian countries, chaired by Switzerland, the necessary capital quota for taking a seat could be achieved. Switzerland is represented on the IMF Executive Board by Daniel Kaeser (EFD) and at the World Bank by Jean-Daniel Gerber (EVD).
Interim Committee: The interim committee, in which finance ministers or central bank chiefs represent their country, advises the IMF on economic and monetary policy issues. The committee adopted a declaration entitled “Partnership for Sustainable Global Growth” and approved the debt initiative. For Switzerland, Federal Councilor Kaspar Villiger and SNB Director Hans Meyer took part in the meeting prior to the 1996 annual meeting.
Development Committee: This committee is a joint body of the IMF and the World Bank and advises the two institutions on development policy issues. Switzerland is usually represented on this committee by the director of the Federal Office for Foreign Trade (1996 by State Secretary Franz Blankart). The new debt initiative was decided within the framework of the Development Committee.
G-10: The Club of Ten counts the most important II industrialized countries among its members, including Switzerland. As part of the General Arrangements to Borrow (GAB), it provides the IMF with funds to bridge liquidity bottlenecks.
G-24: The group of twenty-four represents the interests of developing countries at the IMF and the World Bank. On the question of the debt initiative, the G-24 advocated extensive debt relief to up to 90% of the debt stock for the heavily indebted, poorer developing countries. (An attitude that was also shared by Switzerland.)
G-7: The finance ministers and central bank governors of the G-7 countries (USA, Canada, France, Germany, Italy, Great Britain and Japan) meet regularly in advance of the annual meeting of the IMF and World Bank to discuss the agenda for the annual meeting.
The IMF plans to contribute 1.3 billion SDRs (around 2 billion dollars) to the debt relief initiative by strengthening the ESAF after the gold sale was rejected at an executive committee meeting two weeks before the annual meeting. The ESAF is the concessionary credit window of the IMF, which will be self-sustaining from 2004 due to the massive return of capital at that time. The financing up to this point still has to be settled. For the time being, bilateral payments should enable additional credit reductions via the ESAF. If necessary, financial subsidies (grants) taken into consideration.
Switzerland wants to support the debt initiative on the condition that the financing method is clarified in more detail and that it is certain that the other countries will also participate. With a share of 2.4%, Switzerland's expenditures make up a bilateral contribution of SDR 31 million (around CHF 56 million to be paid by the federal government). Added to this is the waiver of previously made reserve deposits amounting to around CHF 20 million (to be used by the National Bank). A federal decree is required for Switzerland's bilateral contributions. As regards the debt relief within the framework of the Paris Club, Switzerland has already waived the outstanding debts that concern it vis-à-vis the group of countries in question. Switzerland had welcomed the cancellation of up to 90% of the current debt stock, but was satisfied with the compromise reached of 80% for the time being.
The World Bank has made the implementation of the joint debt initiative one of its key activities in the six-point program of action for the years to come. Among other things, IDA lending is to be expanded for this purpose. The World Bank is also opening a trust fund and intends to feed it with up to $ 2 billion; a first tranche of $ 500 million was injected from net income as early as 1996.
The other five areas of the World Bank's action plan are: combating corruption, strengthening the financial sectors in developing countries, paying greater attention to the impact of banking activities on the social sector, increasing emphasis on poverty reduction in rural areas, and strengthening the role of the World Bank in the technology sector.
The doubling of the AKV's credit line from 17 to 34 billion SDRs (around 50 billion dollars) was finally decided at the 1996 annual meeting and is to be completed in 1996. 80% of the new funds are contributed by the eleven countries of the Club of Ten; Other countries in Europe and Asia provide 20% of the funds. Switzerland's share is 4.6%, which equates to around 1.13 billion dollars.
1.5.3. Strengthening the financial sectors in developing countries
Together with the regional development banks, the IMF and World Bank want to strengthen the financial sectors in developing countries and make greater efforts to direct private capital flows into the poorer To direct developing countries. To this end, the capacities in the two institutions are to be strengthened. Private capital flows to developing countries have grown enormously in recent years, but these are concentrated in a few countries with developed markets or economies with high development potential. With targeted resources and a joint effort, the IMF and World Bank want to try to channel private capital into poorer countries in the future.
1.6. Retraining in the Paris Club
73The rescheduling terms for bilateral public debt are negotiated between the debtor country and government creditors within the framework of the Paris Club. This informal body is composed differently depending on the debt package that is to be rescheduled. Switzerland takes part in the negotiations if it is involved with an amount of at least CHF 1 million. The multilateral agreement serves as a reference framework for the subsequent bilateral debt restructuring negotiations.
74 The debtor country applies for a rescheduling negotiation. At the end of the negotiations, a protocol (agreed minutes), which forms the frame of reference for the bilateral debt rescheduling negotiations. Many heavily indebted poorer developing countries (HIPCs) are affected by the bilateral public debt burden. Around 30% of their debt servicing goes to the bilateral government creditors. In the heavily indebted middle-income countries, this proportion is 15%. The rescheduling negotiations are extremely labor-intensive. According to estimates, African governments had around 8,000 rescheduling negotiations with their creditors between 1980 and 199210! These negotiations tie up important human and financial resources without obtaining significant debt relief.
751988 decided the Gl at their economic summit in Toronto on the initiative of the then French President François Mitterrand debt relief. These Toronto terms provided for a reduction of up to a third of the rescheduled maturities from 1 to a maximum of 3 years, this through waivers, low interest rates or longer periods. By 1991, 20 countries were able to reschedule under these conditions. This reduced your debt burden by a mere 4%. In 1991 these conditions were therefore extended to a waiver of the due dates of up to 50% (Toronto Extended Terms).
At the end of 1994, the introduction of the Naples Terms was a step in the right direction Debt Stock Remission Done: The poorest countries can in principle be canceled up to two thirds of their total debt. The Paris Club can, however, only grant 50% waiver in the negotiations or limit the waiver to the due dates. In 1995, of 11 rescheduled countries, only Bolivia and Uganda received debt relief. The conditions are strict: good payment behavior under the previous rescheduling agreements, IMF reform program, guarantee that the remaining obligations will be met after the debt stock waiver.
77 Thus, in the course of the debt strategy of the past few years within the framework of the Paris Club, concessional elements have increasingly been introduced for certain categories of debtors, which can be chosen on a case-by-case basis. In 1996, the Lyon Terms introduced11. For the countries that belong to the group of low income countries, the stock of the rescheduling package presented for rescheduling or, as before, the debt service during the rescheduling period of one to three years from previously up to 67% new to 80% of the current value (net present value ) are issued.
78 The two options Toronto Extended Terms and Naples terms apply to public credits and publicly guaranteed export credits. Public development loans are not waived, but rescheduled over the long term (30 to 40 years).
1.6.1. Multilateral debt rescheduling in 1995
79 At the Paris Club in 1995, 18 new debt rescheduling protocols were negotiated for a total of US $ 20.7 billion; of which $ 7.3 billion related to Algeria and $ 6.4 billion to Russia.
Table No. 11 Multilateral Debt Rescheduling Agreements
Source : Federal Office for Foreign Trade.
80 For the first time, 13 debtor countries became concessionaires Naples terms granted (extended conditions for the poorest and most indebted countries with debt relief of up to 67%). The remaining 5 countries were negotiated on conventional terms. Switzerland is in 8 countries (including 3 to Naples terms) with a total amount of CHF 298 million. Uganda was the first country to benefit from the in 1995 Lyon Terms. Table 11 gives an overview of the debt rescheduling in 1995/96.
1.6.2. Bilateral debt rescheduling in 1995
81 The data on multilateral and bilateral debt consolidations were compiled by the ERG / Federal Office for Foreign Trade.
82 In 1995 Switzerland signed bilateral debt rescheduling agreements with 4 countries (1994: 8). This concerned Togo, Sierra Leone, Jordan and two agreements with Russia. Of the rescheduled amount of CHF 240.7 million, CHF 136.7 million relate to due dates from earlier rescheduling, which were thus consolidated once more, and CHF 104 million related to new due dates from old contracts. The debt rescheduling with Sierra Leone includes a debt relief of 50% corresponding to the Trinidad terms and those with Togo - it is the tenth bilateral debt rescheduling - one of 67% according to the Naples terms.
83 In the first half of 1996, Switzerland concluded bilateral debt rescheduling agreements with 8 countries.
Table No. 12
Bilateral debt rescheduling 1995 and 1996 (first half of the year)
Source : Section ERG / Federal Office for Foreign Trade.
Overall, an improvement in the debtor countries' ability and willingness to pay was found in 1995 compared to the previous year. In 1995, 60.7% of the invoiced capital repayments (1994: 25%) and 66.8% of the interest claimed (1994: 56%) were effectively paid.
At the end of 1995 there were a total of 93 bilateral debt rescheduling agreements with 31 countries.
1.6.3. Welcome but insufficient relief
86 The UNCTAD Secretariat used the simulation method to calculate the effects of the Naples conditions with the option of 67% debt relief on the countries concerned, 22 of which are LDCs. The relief could be essential for 11 LDCs, in 4 of these countries the debt service ratio could be brought to the hoped-for mark of below 20% of export earnings. For the other 11 countries, the relief would be less significant. According to UNCTAD, the simulation shows that isolated relief does not adequately relieve a country's debt service burden. The service to be rendered to others, namely the multilateral debts, remains high. In addition, the complex and complicated negotiations within the framework of the Paris Club and subsequently with each of the individual bilateral creditors would in turn entail high costs and an enormous amount of time for the debtor country. UNCTAD advocates better efficiency in debt management in the sense that the Paris Club's agreements are also applied analogously to commercial debt and multilateral debt12.
The federal states are free to grant more extensive concessions than those agreed in the Paris Club. For example, in previous years Switzerland had already waived all development loans owed from the time when part of Swiss development cooperation was granted in the form of loans. With the Swiss debt relief facility, Switzerland is also taking an innovative path, which it had hoped for more imitators among the other government creditors.
1.7. Measures taken by Switzerland in the area of debt
88In the anniversary year of 1991 (700 years of the Confederation), Switzerland decided on a credit line for debt relief and environmental measures in favor of developing countries in the amount of 700 million francs. A debt relief fund was set up for debt relief measures and endowed with a total of 500 million francs: 400 million francs from the anniversary fund and 100 million francs from the credit line for economic and trade policy measures13. To date, the fund has mainly been used for bilateral debt relief operations; At the end of 1995, a total of CHF 276 million was committed. In the future, the challenge now lies in the area of multilateral debt problems.
89Switzerland's debt relief measures mainly focused on the bilateral area. The central element was that creative debt reliefwhich provided that the equivalent of the canceled debts is converted into local currency and flows into a development fund from which projects in the social and environmental sectors are financed14. Switzerland has made its bilateral demands on countries with a credible
90 Although bilateral debt constitutes the largest part (61% in 1993) of the external debt of the heavily indebted, poor developing countries, the share of multilateral debt (25%) is increasing. The multilateral debts are characterized on the one hand by a high proportion of donations (approx. 70%), on the other hand they are never the subject of debt rescheduling or debt reductions. However, there are numerous poorer, heavily indebted developing countries whose external debt is largely multilateral, such as Uganda, which has a 70% multilateral share of the total external debt of $ 3.3 billion at the end of 1994 (80% of GDP) and annually Must spend 29% of its export earnings on multilateral debt servicing.
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