Côte d’Ivoire to get 60% of debt cancelled
The West African country has finally qualified for the debt relief scheme first created in 1996, and enhanced ahead of the G8 in Gleneagles, Scotland, in 2005.[1]
The decision means £22 million of debt owed to the UK – two-thirds of which is interest – should be cancelled, but the government will count this as ‘aid’. The original loans were tied to Côte d’Ivoire buying British exports, though the government has not revealed what projects the loans supported.[2]
Under the scheme, most old debts owed to foreign governments, and multilateral institutions such as the World Bank, should now be cancelled. But debts from loans from the last eight years, as well as debts to private creditors, will remain. The uncancelled debt and new borrowing mean Côte d’Ivoire’s debt payments could still rise back to one-fifth of government revenue by the end of the decade.[3]
Tim Jones, policy officer at Jubilee Debt Campaign, said:
"This moderate debt relief for Côte d’Ivoire will not free the West African country from the debt crisis which has lasted 30 years. Nothing has been done to audit the debt and find out how reckless lending and borrowing, and failed economic policies, led to this large debt being created in the first place. Failing to learn lessons from the past threatens to repeat them in the future.
"It is good that the UK will finally cancel this debt. But writing off old debts, which come from loans tied to British companies, is not aid, especially as the government has refused to say what exports the loans were for. UK Export Finance, the government department which backed the original loans, has a notorious record of supporting dodgy projects, such as arms sales to dictators in Iraq, Indonesia and Zimbabwe.”
Côte d’Ivoire’s debt crisis began in the early 1980s. Private banks and institutions recklessly lent over $5 billion between 1977 and 1982.[4] In 1982 US interest rates rose, and prices for key export crops such as cocoa and coffee started to fall. Côte d’Ivoire was unable to meet repayments. The private lenders were bailed out with new loans from the IMF and World Bank, which were added to the West African country’s debt.
In return for these loans Côte d’Ivoire had to introduce radical free market policies such as cutting government spending and introducing user fees for healthcare, eliminate price controls and remove trade and finance regulations and labour laws.[5] Through the 1980s and 1990s Côte d’Ivoire spent one-third of government revenue every year paying foreign debts, whilst the economy shrank by 30 per cent.[6]
Between 1985 and 1998 the percentage of the population living in poverty, on less than £1.25 a day, increased from a quarter to a half; from 2.5 million to 8 million people.[7] At the time, the country was ruled by Félix Houphouët-Boigny, who’s regime aided coups against Kwame Nkrumah in Ghana in 1966 and Thomas Sankara in Burkina Faso in 1987.
Between 2004 and 2007, during its civil war, the Côte d’Ivoire government stopped making payments on much of its debt. One of the conditions of qualifying for debt relief was to start making payments again, which have averaged 15 per cent of government revenue since 2008. Some of these payments were met with more loans from the IMF and World Bank, which will not now be cancelled. The country continues to be highly dependent on selling primary commodities, such as cocoa and coffee, which make up 85 per cent of exports.[8]
For more information or interviews contact Tim Jones on +44 (0)20 7324 4725 or +44(0)7817 628196
Notes
[1] The debt relief scheme is the Heavily Indebted Poor Countries initiative. Thirty-two countries have qualified for the scheme, and had around $120 billion of debt cancelled. To be eligible for the scheme countries have to have both a large debt and be very impoverished. To qualify for debt cancellation, country’s have to meet economic and governance conditions set by the IMF and World Bank. On qualifying, countries usually get up-to 100 per cent of their debt cancelled owed to the IMF, World Bank, African Development Bank and foreign governments on loans prior to 2003/2004. The IMF announcement is at http://www.imf.org/external/np/sec/pr/2012/pr12239.htm
[2] Côte d’Ivoire owes the UK government’s UK Export Finance £22 million ($35 million). Of this, £14 million is interest. The money lent was tied to Côte d’Ivoire buying British exports. It is likely the UK government will now cancel this debt. However, it will count the £22 million cancellation as ‘aid’ and as contributing to meeting the government’s target to spend 0.56 per cent of national income on aid in 2012/13.
[3] IMF. (2011). Côte d'Ivoire: 2011 Article IV Consultation and Requests for a Three-Year Arrangement Under the Extended Credit Facility and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries—Staff Report; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Côte d'Ivoire. International Monetary Fund. Washington DC. November 2011.
[4] Calculated from World Bank. Global development finance database.
[5] Ismi, A. (2004). Impoverishing a continent: The World Bank and the IMF in Africa. http://www.halifaxinitiative.org/updir/ImpoverishingAContinent.pdf
[6] Calculated from World Bank. Global development finance database.
[7] Calculated from World Bank. World Development Indicators database.
[8] UNCTAD. (2012). The state of commodity dependence. http://unctadxiii.org/en/SessionDocument/suc2011d8_en.pdf