Sumario: Third Preparatory Committee for the International Conference on Financing for Development: SEUI Heading V Debt . Intervention by Ambassador Ruth Jacoby, Head of Delegation of Sweden on behalf of the European Union (New York)
Generally, the EU supports the view expressed in the Facilitator's working paper that most low-income countries are not primarily faced with a debt problem but a much broader problem of development and need for resources. From the creditor side, the additionality of debt cancellation to other development efforts such as ODA is of great significance. Debt relief should not come at the expense of development financing and development assistance should not be skewed towards heavily indebted
countries at the expense of those who have managed their debt effectively.
In order to make debt reduction successful in the longer perspective and to secure that it contributes to poverty reduction, it is imperative that domestic policies in indebted countries promote constructive use of freed resources towards poverty reducing measures, and that debt relief is recognised as an important instrument for mobilising domestic financial resources.
We believe that there is scope in the FfD process to discuss measures to strengthen the effective implementation of the Enhanced HIPC initiative to ensure that debt relief is used to eradicate poverty, to help maintain debt sustainability and to ensure that the poorest countries avoid accumulating unsustainable debt overhangs in the future.
The overriding goal of the HIPC initiative is a sustainable, lasting exit from unsustainable debt. Therefore, when assessing countries' progress towards completion point we should be looking for credible adjustment and commitments. We need to start measuring success in terms of quality instead of numbers. But we should also be prepared to assess the debt relief at the completion point when there should be a thorough analysis and discussion of the prospects for long-term debt sustainability. And
in particular, of course, in exceptional circumstances if exogenous factors cause fundamental changes in a country's circumstances which severely affect the sustainability. The option exists within the HIPC framework in such cases to consider additional debt relief at the completion point. We recognise that following natural disasters and great humanitarian crisis the international community may need to provide temporary assistance with a country's debt obligations, as part of a wider package
of relief and rehabilitation. The Paris Club of official creditors has already provided moratoria on debt servicing on a case by case basis, for example, for Mozambique following floods last year. Furthermore, countries emerging from conflict need substantial assistance to break the cycle of violence, low growth and poverty. Overall we endorse increased efforts by the Bretton Woods institutions to increase assistance to post-conflict countries.
We support the Facilitator's and G77's proposal to strengthen debt management. Debt management capacity is weak in many debtor countries. The EU supports measures, notably through capacity building to contribute to a solution of this problem. Such capacity building must aim at fostering a culture of "responsible borrowing". Simultaneously, creditors and, in particular, export credit agencies should engage in "responsible lending". We support OECD's ongoing work within this field. Measures to
discuss could be improvements to debt management capacity building and effective national mechanisms for determining new borrowing; better ways to handle domestic and external shocks; and improved lending by creditors.
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