Owning the loan poor countries and the MDGs A Christian Aid and AFRODAD report on how national ownership of the loan process can help poor countries reach the Millennium Development Goals April 2004 This report was written by Kato Lambrechts with contributions from Barbara Kalima Charles Mutasa Megan Allardice Nixon Khembo Gabriel Dava B Kaiza S Muyakwa Basil Kandyomunda and Paul Ladd Comments were provided by Olivia McDonald Roger Riddell Dan Silvey Helen Collinson Malawi Economic Justice Network Mozambique Debt Group Jubilee Zambia Uganda Debt Network and Tanzania Coalition on Debt and Development The report was edited by Louise Parfitt Christian Aid is a leading UK and Irish relief and development agency working in some of the world s poorest communities in more than 50 countries We act where the need is greatest regardless of religion helping people to tackle the problems they face and build the lives they deserve At home and overseas we campaign to change the structures that keep people poor challenging inequality and injustice The African Forum and Network on Debt and Development AFRODAD is a civil society organisation born of a desire to see lasting solutions to Africa s mounting debt problem which has impacted negatively on the continent s development process AFRODAD works with and through its affiliates in ten African countries c Christian Aid and AFRODAD 2004 Contents Executive summary 2 Introduction 4 How will low income countries raise the money for the MDGs 6 Domestic resources Plugging the holes External resources Aid effectiveness 7 8 9 10 What mix of loans and grants 10 Who decides on loans 12 How are loans agreed Checks and balances in the loan cycle The effectiveness of formal watchdog institutions The World Bank in the loan cycle Civil society participation in loan agreements How can citizens become involved in loan funded projects and programmes 15 17 19 19 20 22 Conclusions 24 Recommendations 24 Endnotes 26 Glossary 28 Owning the loan poor countries and the MDGs 1 Executive summary Christian Aid and AFRODAD commissioned research in December 2003 to investigate the links between debt management the build up of new loans and the most sustainable ways of financing the Millennium Development Goals MDGs in Malawi Mozambique Uganda Tanzania and Zambia all low income and highly indebted countries Together they face an estimated minimum shortfall of US 65bn without which they will not reach the MDGs by the target date of 2015 Since reaching their respective decision points under the HIPC initiative governments in these five countries have contracted US 4 4bn in new debts from the International Development Association IDA with another US 2bn in IDA loans in the pipeline for future projects This debt stock is equivalent to the total amount they still need to repay all their creditors on their reduced debt stocks between 2000 and 2015 In January 2004 their outstanding loans to the IMF totalled US 1 75bn most of which have been agreed since 2000 This report argues that the process by which aid recipient countries agree to take on the terms and conditions of a loan needs to be opened up to scrutiny by citizen groups and their representatives in parliament and other formal democratic structures This should help to avoid lending and borrowing mistakes which in the past have led to the build up of unsustainable debts that now have to be paid off at the cost of financing the MDGs The MDG targets which differ from country to country provide a useful political tool that allows citizens to hold their governments and creditor institutions to account for the design and impact of development projects and programmes as well as their financing The research findings show that governments and international financial institutions often negotiate and sign loan agreements in a non transparent and non accountable way In some cases the government may overrule their parliament s objections to a loan and often parliaments end up rubberstamping new lending agreements without being properly involved in the decisionmaking process Civil society organisations have played a very limited role at any stage of lending agreements There is no formal legislation to involve them in the loan cycle and they lack the resources and skills to research advocate on and monitor government loans Recommendations To African governments 1 Make transparent decisions about whether to finance development programme and projects through loans or grants based on the nature of the project the ability to repay the loan from the returns of the project and future trade offs with public investment needed to reach the MDGs 2 Include citizens in the decision making process through their formal representatives in parliament and official watchdog bodies and through civil society organisations and networks that represent their different interests 3 Enact legislation that will require the executive bodies responsible for dealing with external debt to make debt information accessible to the public Owning the loan poor countries and the MDGs 2 4 5 6 Give parliament and other watchdog bodies a formal and substantive role in approving and monitoring all external loans Establish structures or processes outside parliament through which citizens can influence public loan decisions Set up official forums and processes through which citizens can debate and influence economic policy proposals to strengthen public ownership of economic reforms and promote their long term sustainability To the UK government 1 Report to the UK parliament on the vote of UK executive directors in the World Bank and IMF on project and programme loans and grants 2 Encourage G8 creditor countries to allow the IDA to disburse at least 40 per cent of its payments to HIPCs as grants that do not impose more or harmful conditions on borrowing countries 3 Explore ways of making up the shortfall in future IDA financing as a result of reduced loan repayments including larger replenishment amounts and cross financing from more profitable World Bank lending instruments such as loans to middle income countries To international financial institutions 1 Write off with immediate effect all pre decision point debts owed by low income countries where paying these debts is reducing the resources available to governments to cover the costs of reaching the MDGs 2 Establish a transparent fair and comprehensive international arbitration process on debt in the United Nations to allow all
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