March 24, 2006

The Honourable James Flaherty
Minister of Finance
Department of Finance Canada
140 O'Connor Street
Ottawa, ON K1A 0G5

Re: Multilateral Debt Relief Initiative

Dear Minister Flaherty,

Last July, at the Gleneagles Group of Eight (G-8) Summit the Canadian government agreed to cancel the debts of 18 developing countries through what has subsequently become known as the Multilateral Debt Relief Initiative (MDRI). The MDRI covers International Monetary Fund (IMF), International Development Association (IDA) and African Development Fund (AfDF) debt. While we welcomed the historic commitment to 100% debt cancellation, we were equally concerned that the initiative did not go far enough in terms of the countries covered and its foundation in the deeply flawed Heavily Indebted Poor Country (HIPC) Initiative.

But in the past few weeks, we have become even more discouraged by a proposal from IDA addressed to the Executive Directors of the World Bank to implement IDA's part of this initiative. This proposal not only backtracks on the commitments made at Gleneagles, but is also inconsistent with how the IMF has implemented the same initiative. We strongly urge the Canadian Executive Director to raise the following concerns on Tuesday March 28th, when the World Bank directors will discuss the modalities of the deal, and ensure that all countries receive immediate full debt cancellation as of July 1, 2006.

As currently envisaged, the IDA proposal falls short in the following areas, as measured against the Gleneagles commitment:

• The IMF's version of the MDRI proposed immediate full cancellation for 17 Heavily Indebted Poor Countries (HIPC) and 2 non-HIPC countries. The countries to benefit from debt relief will be Benin, Bolivia, Burkina Faso, Cambodia, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tajikistan, Tanzania, Uganda, and Zambia. Sixteen of these are CIDA development partner countries. Under the IDA proposal countries are only eligible for debt cancellation this July if they have reached completion point by March 30, 2006. Due to the way that IDA does its accounting, those that reach completion point on April 1 will only receive full cancellation in July 2007 ?two years after Gleneagles. Furthermore, the IDA proposal to be debated on March 28th proposes that other countries will have to wait significant periods between reaching completion point and receiving full debt cancellation under the MDRI. For example, Cameroon would have to wait 15 months, Chad 12 months, Gambia 13 months and the Central African Republic 12 months. Some nations, like Haiti, the poorest country in the Western Hemisphere, will have to wait until 2009 to be eligible. During this time, they will have to continue to make non-refundable debt payments.
  RECOMMENDATION: These time delays are not acceptable. The IMF plan, agreed last December, led to immediate cancellation. We therefore call on Bank Executive Directors to follow the precedent set by the IMF, and ensure that debt cancellation is immediate once a country attains completion point under the HIPC Initiative.

• Whereas the IMF and AfDF have a cut-off date of December 2004 for eligible debt, the IDA plan only covers country debts up until December 2003. This means that new debts contracted HIPCs between the end of 2003 and December 31, 2004, will NOT be covered under the MDRI. This excludes a sizable amount of many countries' debts. It reduces the total debt cancellation under the MDRI by about US$5 billion relative to what was promised at the time of the Gleneagles Summit. The different cut-off dates expose the glaring inconsistencies between the IMF and AfDF plans, and the Bank's, even though both emanate from the same initiative.
  RECOMMENDATION: Both Bank and IMF cut-off dates should be consistent. The Bank debt cancellation package should cover a country's debts up until December 2004.

• Finally, we have also learnt that first 18 HIPC countries will be expected to meet additional conditionalities NOT required of other decision point countries upon reaching completion point. Failure to meet these criteria will put countries on a six month probation period during which they will have to undergo Bank and Fund conditions before being eligible again for cancellation. These extra conditions excluded Mauritania last December from IMF debt cancellation and may also delay the cancellation of its IDA debts.
  RECOMMENDATION: The Halifax Initiative Coalition believes that full debt cancellation should be unconditional.

Moreover, many of these debts were odious or illegitimate in the first place, the consequence of irresponsible lending to despotic regimes. These debts leave many countries spending more money on debt service than they spend on health and education, while millions of people die every year from treatable diseases like AIDS.

When the World Bank Executive Board meets on March 28, we urge you to allow countries to receive 100% cancellation as soon as they reach completion point, without unnecessary additional delays and harmful conditions.

Sincerely,

John Mihevc
Chair, Halifax Initiative. Coalition
CC: The Hon. José Verner, Minister of International Cooperation
Mr. Marcel Massé Canadian Executive Director to the World Bank

On behalf of member groups:
Canadian Catholic Organization for Development and Peace
Canadian Conference of Catholic Bishops, Social Affairs Office
Canadian Council for International Cooperation
Canadian Friends of Burma
Canadian Labour Congress
Canadian Lawyers for International Human Rights
CAW-Canada
CoDevelopment Canada
CUSO
Democracy Watch
Falls Brook Centre
Friends of the Earth Canada
KAIROS: Canadian Ecumenical Justice Initiatives
MiningWatch Canada
North-South Institute
Oxfam Canada
RESULTS Canada
Rights & Democracy
Social Justice Committee
Steelworkers Humanity Fund
Toronto Environment Alliance
World Interaction Mondiale