Letter to Minister Goodale Re: Leadership on Full and Unconditional Cancellation of Poor Country Debts - January 28, 2005

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January 28, 2005

The Honourable Ralph Goodale M.P., P.C.,
Minister of Finance
140 O'Connor Street
Ottawa, ON K1A 0G5
Fax: 995-5176

RE: Canadian CSOs Call for Leadership to Secure Full and Unconditional Cancellation of Poor Country Debts

Dear Minister Goodale,

The next few months offer an historic opportunity for Canada to take leadership among the G7 Finance Ministers to consider genuine and permanent solutions to the problems of debt and development, especially as they affect Africa.

In 2000, the leaders of all nations made commitments in signing onto the Millennium Declaration "to spare no effort to free our fellow men, women and children from the abject and dehumanizing conditions of extreme poverty." Finance ministers meeting in London next month have a unique opportunity to live up to this challenge.

On behalf of the Halifax Initiative Coalition and the Africa Canada Forum, a working group of the Canadian Council for International Cooperation, we call on you to recognize this moment and champion the unconditional cancellation of 100% of the multilateral debts owed by impoverished countries and set out a timetable for the provision of additional Official Development Assistance (ODA) to enable them to meet the Millennium Development Goals.

A Permanent Solution to the Debt Crisis
We appreciate the leadership that Canada has taken by being the first country to announce a moratorium on servicing, followed by 100% cancellation, of bilateral debts owed by the Highly Indebted Poor Countries (HIPC), as well as leadership in proposing the moratorium for countries affected by the Indian Ocean tsunamis. But, Canada needs to ensure that payments of these debts, particularly multilateral debts, are not just suspended but cancelled. For every dollar of Canadian bilateral debt relief to date, Sub-Saharan African - countries owe another $94 to multilateral financial institutions.

We also commend your candid recognition of the failure of the current World Bank/IMF HIPC initiative. You have noted in your statement to the Africa Commission how 6 of the 11 African countries that have completed the HIPC process still have unsustainable debts "largely driven by international financial institutions (IFI) borrowings." Moreover, you have observed how "many HIPC and non HIPC debt payments (especially to the IFIs) are too high relative to servicing capacity and social needs." Furthermore, you have noted the need to "treat other non HIPC poor countries equitably."

In our view the proposal that has been put forward by UK Chancellor Gordon Brown only appears to propose 100% multilateral debt write-offs for the world's poorest countries. A careful reading of the consultation document prepared by the UK government entitled "Debt Relief Beyond HIPC" reveals that the UK proposal is not in fact a debt cancellation plan, but only an offer of further debt relief. And it does not even apply to all countries that have passed their HIPC decision points. Instead of actual debt remission Mr. Brown suggests donors pay the debt service owed to the IMF, the World Bank and the African Development Bank by the 15 HIPCs that have already reached their completion points and by 6 other - IDA only - countries (Albania, Armenia, Mongolia, Nepal, Sri Lanka and Vietnam). After 2015, these countries would then have to resume payments on their multilateral debts unless an assessment at the time was to lead to an extension of the program. Debtor countries face the uncertainty that changes in governments or policies among creditor nations could presumably suspend or change their participation in this program at any time.

Moreover, under the UK proposal many countries would not be eligible for even this very limited form of debt relief, including the 12 HIPCs still in the interim period and the 11 other countries which have yet to qualify for any HIPC criteria until they reach their completion points. They stand to gain no additional debt relief until after enduring more years of harsh IMF conditionality. Yet these 23 impoverished countries owe almost as much debt as the 15 that have passed their completion points. Hence, Chancellor Brown's actual proposal falls far short of what is needed.

Similarly, the US proposal that would cover the cost of multilateral debt write-offs by reducing future lending by one dollar for each dollar of debt relief is also flawed. We understand your insistence on the principles of 'additionality' and assurance of the financial viability of the IFIs to be an implicit critique of the US proposal.

Financing Debt Cancellation
As of June 30, 2004, the World Bank had US$3.5 billion in loan loss provisions and US$24 billion worth of retained earnings. Our research, along with that of others, clearly demonstrates that the use of some of these reserves would not undermine the financial integrity of the World Bank as the Bank is backed up by its 184 member countries and is recognized in financial markets for its prudent lending policies.[1]

Chancellor Brown has proposed that part of the cost of paying for multilateral debt servicing by donors could be covered through additional ODA allocations. If this option is adopted, then we propose that any new ODA spending by Canada for debt servicing must be additional to annual increments to ODA of 12% over the years 2005 through 2007 and 15% over the years 2008 through 2015, needed to meet the 0.7% of GNI target by 2015.

Presidents Chirac and Lula da Silva put on the international agenda a number of innovative proposals for raising revenue including options such as taxes on international financial transactions, arms purchases and carbon emissions. Canada could play an invaluable role by brokering a package of measures allowing each G7 Minister an opportunity to contribute to a truly innovative and comprehensive solution to debt and resources for development.

Ending SAP Conditionality
After your trip to Africa last year you said the IMF and the World Bank "need to become more sensitive to local conditions, especially with respect to structural reform conditionality" and noted how "many low income countries would benefit from moving away from reliance on IMF resources and traditional staff-led conditionality."

We appreciate your candid questioning of at least some aspects of IMF and World Bank conditionality. However, we urge you to look deeper at the consequences of twenty years of experience with Structural Adjustment Programs and Bank/IMF policy prescriptions imposed on debtor countries. Many civil society and independent assessments have concluded that they have resulted in disappointing levels of economic growth, efficiency and competitiveness, the misallocation of financial resources, the destruction of national productive capacity, the weakening of democratic processes and government accountability, extensive environmental damage and growing poverty and inequality.

Demonstrating Leadership
We were impressed with how quickly first Canada and then the whole G7 moved to implement the moratorium on collecting bilateral debt payments from affected countries after the tsunami. Similarly, Canada did not hesitate to offer to write-off the vast majority of the $750 million in debts owed by Iraq after the fall of the Saddam Hussein regime. When the political will exists Canada and other G7 countries can act quickly and decisively.

In summary, we call upon the Government of Canada to lead a movement to:

  • SECURE the immediate and unconditional cancellation of 100% of the debts owed to multilateral financial institutions by all impoverished countries that need debt cancellation in order to meet the Millennium Development Goals, including halting the HIV/AIDS pandemic;
  • ENSURE that countries are free to implement their own national development strategies by ending IMF and World Bank Structural Adjustment Programs;
  • RECOGNISE that neither the people of Iraq, nor citizens of other countries formerly ruled by dictators, should be obliged to repay odious debts; and
  • GUARANTEE adequate financing for impoverished countries including through the dedication of 0.7% of Gross National Income to Official Development Assistance.

More than 130,000 Africans die every week from preventable causes, including malnutrition, HIV/AIDS, malaria, tuberculosis and contaminated water. Yet Sub-Saharan African countries continue to pay about US$12 billion a year servicing debts. The record of HIPC demonstrates how past efforts by the G8 and the international financial institutions have thus far failed.

We look forward to meeting with you to discuss Canadian leadership seizing opportunities in the upcoming G8 meetings and in the recommendations for action from the Commission for Africa.


John Mihevc, Chair, Halifax Initiative
Molly Kane, Co-Chair, Africa Canada Forum
Danielle Gobeil, Co-Chair, Africa Canada Forum
Gerry Barr, President and CEO, Canadian Council for International Cooperation (CCIC)

Cc: Hon. Pierre Pettigrew, Minister for Foreign Affairs
Hon. Aileen Carroll, Minister of International Cooperation

[1]EURODAD, "Paying for 100% Multilateral Debt Cancellation." by Sony Kapoor, January 2005,