Download Ethiopia - School

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The economy, with large agrarian, mining, and manufacturing sectors, entered the 1990s with declining real growth, runaway inflation, an
unserviceable foreign debt of $122 billion, and a lack of policy direction.
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Brazil, along with other Latin American and Caribbean countries, is considered an "emerging" nation with a medium income level. Its
income distribution profile, however, is among the worst in the world, with one quarter of its population - that is, 40 million people below the poverty line. The Tribunal was thus called on to identify the relationship between Brazil's foreign debt and this situation of
injustice and misery
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. In addition to pinpointing the factors that lead to and constitute the foreign debt, and then cause it to grow out of all proportion, and to
identifying those responsible for it, the purpose of the Tribunal was to define alternative policies and strategies of action for sustainable
means to surmount the crisis of foreign indebtedness and its social and environmental consequences.
After four sessions, in which an extensive and diverse body of documented material was submitted and testimony and declarations
heard from Brazilians and specialists from other countries discussing the issues to do with the debt in brazil.
Brazil has erupted into crisis because its policy-makers, private financial markets and the IMF have not paid enough attention to the
country's steadily mounting debt problem. Contrary to what you often hear, some important fundamentals in Brazil have deteriorated
over the past few years and the external environment facing it has also worsened
In 1994, Brazil's net public debt as a share of gross domestic product was 30 per cent. Today it is almost double that—and this despite
significant privatisation revenues and a tax ratio to GDP much above that of many emerging economies
Because a large share—more than 40 per cent—of Brazil's public debt is denominated in, or linked to, the dollar, it made itself hostage
to the large depreciation of the real that has occurred in recent years.
Debt build-ups become more troubling when economic growth slows. This year, the Brazilian economy is expected to grow by about 1.5
per cent compared with almost 4.5 per cent in 2000
Brazil's ratio of external debt—public and private—to exports stands at more than 400 per cent.
In 2000, Brazil recorded a current account deficit of 4 per cent of GDP, slightly higher than the deficit expected this year. But at that time
Brazil was receiving $33bn in foreign direct investment; this year, it will be fortunate to get half that amount
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a very large portion of Brazil's debt is greatly increased in cost by economic turmoil. Forty percent of total debt is denominated in
dollars, so increases as a percentage of GDP when the Brazilian real drops in value against the dollar. An additional 37 percent of debt is
linked to the "Selic" overnight money market rate, so becomes very expensive when, as for most of the last 8 years, uncertainty raises
domestic interest rates
interest rate on Brazil's public debt over the 1994-2001 period was 16.1 percent a year, and the projected real interest rate on Brazil's
public debt for 2002 is 21 percent
If interest rates remain at these levels, the debt will become unmanageable, rising above 100 percent of GDP in 2006-2009, and
spiralling thereafter, if policy remains as at present. Brazil's balance of payments would also be a problem, because public debt is 4
times the level of the country's export earnings
Domestically, one-third of Brazil's public debt is held by the banking system, which would have to be protected against the default if the
government did not want to run into a huge liquidity problem as in Argentina.
restructuring involving a write-off of 50 percent of NPV on that portion of the international and domestic debt on which default was
practicable would provide a benefit of only 16 percent of GDP.
Resources have always been primarily directed through the government, which runs a public-sector deficit as large as it thinks it can get
away with, thus raising interest rates - a "primary surplus" of 3 percent to 4 percent of GDP is nowhere near enough for stability if it
translates to a true public sector deficit of 4 percent to 5 percent of GDP after debt service has been accounted for
Unfair international trade is one of the main causes of inequality in Brazilian society and social organisations have campaigned long and
hard for reform.
•The International Monetary Fund (IMF) and rich industrial nations have agreed to rescue Brazil's
economy with an aid package worth $41bn over three years
•The money will be used to support tough economic reforms and protect the country's currency
•The aid package is a bid to prevent a financial meltdown in Latin America's largest economy - and
the rest of the continent. However, many Brazilians will have to suffer hardship before things get
better.
•IMF's managing director who announced the package in Washington, said Brazil could call on $27bn
within the next 12 months.
•it would receive $9bn immediately after the loan package is approved by the IMF board.
•The IMF itself will contribute $18bn to the package, while the World Bank and Inter-American
Development Bank will give $4.5bn each.
•The European Union will provide $7.55bn in bilateral contributions, the United States $5bn and the
remainder other industrialised countries
•The IMF and Brazil have agreed ambitious targets for cutting public sector spending. The deal calls
for a budget surplus of 2.6% of GDP in 1999, 2.8% in 2000, and a massive 3% in 2001
•Brazil has said it plans to pay off its entire $15.5bn (£8.7bn) debt to the International Monetary Fund
(IMF) by the end of the month.
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The IMF and Brazil have agreed ambitious targets for cutting public sector spending. The
deal calls for a budget surplus of 2.6% of GDP in 1999, 2.8% in 2000, and a massive 3% in
2001
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Brazil has said it plans to pay off its entire $15.5bn (£8.7bn) debt to the International
Monetary Fund (IMF) by the end of the month
Introduction
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Ethiopia is one of the poorest countries in the world and once again faces a serious food crisis, with more
than 12 million people in need of aid.
According to the UN, because of shortfalls in aid, a generation of children is being ’slowly starved’. While
the crisis has been triggered by a severe drought, the collapse in coffee prices and Ethiopia’s debt burden
have both played their part.
Debt issues
Ethiopia’s total Debt in 1998 was US$10.4 billion, the sixth highest total among the Heavily In Debted Poor Country (HIPC)
countries. More than two thirds of the long term Debt is owed to bilateral creditors, with the largest proportion of US$5.5 billion
owed to Russia. Just over one quarter of long term Debt is owed to multilateral institutions, mainly the World Bank’s
International Development Association (IDA) and the African Development Bank, with a relatively small amount due to private
creditors. In 1998 Ethiopia paid US$119 million in Debt service, less than 20 percent of the full US$612 million Debt service due.
Initially Ethiopia was to be one of the first countries to gain HIPC Initiative assistance, but the IMF has blocked the country’s
progress by declaring its last two Enhanced Structural Adjustment Facility (ESAF) structural adjustment programmes off track
twice, largely due to the conflict with Eritrea. Consequently, as Ethiopia was not expected to have a new IMF programme or an
interim Poverty Reduction Strategy Paper (PRSP) in place until at least the end of 2000, the earliest the country can expect HIPC
assistance is at the end of 2001. Preliminary estimates indicate that Ethiopia can expect about US$1.3 billion (nominal) in Debt
relief under HIPC 1. HIPC 2 will increase this further.
Debt issues
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In 2000/2001 Ethiopia’s debt payments amounted to $105m. The country’s total debt stands at almost $6bn, the
equivalent of its entire GDP.
Ethiopia is among the countries eligible for the World Bank and IMF's HIPC (Heavily Indebted Poor Countries) initiative.
However, full debt relief has been delayed by stringent World Bank and IMF conditions placed on the government.
Its ability to pay back its debts has been severely restricted by the collapse in the world price of coffee, which accounts
for 60 per cent of its export earnings.
Between 1998 and 2001, Ethiopia made debt repayments worth $536 million to its international creditors – money that
could have been spent on improving the country’s agricultural sector and introducing safeguards to shield its population
from famine.
Ethiopia's debt is becoming more and more unsustainable, even under the narrow criteria used by international
agencies to calculate what countries can afford to pay. Changes in interest rates and continued low coffee prices are
projected to drive the value of the debt up to 220 percent of Ethiopia's exports, even after promised relief.
Late in 2003, the International Monetary Fund (Fund) and the World Bank (Bank) deemed Ethiopia eligible for an
additional US$700 million ("Topping Up") debt relief. Such relief is necessary to return Ethiopia to sustainability,
according to the Bank and make her eligible for US$1 billion in new lending. If Ethiopia does NOT receive topping up
then the Government will have to spend an average of about $35 million per year more in debt service over the next 10
years. In other words, getting the additional debt relief to lower Ethiopia's ratio of present value of debt to exports to
150 per cent will reduce the annual debt service cost by about US$35 million per year over 10 years.
Debt issues
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To be eligible for debt relief, Ethiopia has met with the tough economic conditions set by creditors, and imposed through the Fund and the
Bank, over the long five-year process of qualifying. Ethiopia has now, finally, reached completion point of the Enhanced HIPC process.
Without the additional topping up US$700 million that she has been promised and is now eligible for the Bank and the Fund believe that
Ethiopia will not emerge from an unsustainable level of indebtedness. If additional relief is denied, the Bank and Fund project that
Ethiopia's debt-to-export revenues ratio will rise to at 220 per cent after the full delivery of debt relief - fully 70 per cent above that
considered sustainable.
In other words two of the world's richest creditors are attempting to adopt arbitrary criteria to deny a small and very poor country
US$700 million of debt relief. If Ethiopia is denied this relief, debt service payments will be an additional US$35 million per year for the
next 10 years. Worse, this denial of debt relief will prevent the World Bank from disbursing to Ethiopia a new, promised loan of US$1
billion - because HIPC rules prevent the Bank from lending to countries deemed unsustainable.
US$700 million of debt relief will have a significant impact on the Ethiopian economy as it represents almost twice the revenues from
national exports per year. A fall in debt servicing of US$35 million per year will provide a significant fillip to Ethiopia's budget for health,
education, water and other vital services. Furthermore, if Ethiopia is to achieve its Millennium Development Goals - Goals set by creditors
like Germany and the US - additional debt relief, new loans and aid are urgently needed.
Aid in Ethiopia
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4.5 million has been allocated to help vulnerable people threatened by the prolonged drought and internal conflict. This will cover the
provision of medical and nutritional assistance, basic water supplies, livestock support, and protection of civilians. Between 500,000 and
one million people will directly benefit from actions funded under this decision.
€20 million has been granted to the World Food Programme for Ethiopia in 2005, in addition to substantial allocations to the Ethiopian
government (€30 million over 2 years) and to NGOs (€10 million for 2005).€60 million will also be made available from the European
Development Fund for the safety net programme, which aims to tackle chronic food insecurity
Water shortages and the poor quality of the water that is available have had a negative impact on communities that are already highly
vulnerable. The nutritional status of the population is badly affected by livestock losses. Children, who rely heavily on milk for
nourishment, are particularly badly hit. In rural areas, it is reported that almost 40% of children and women are malnourished.
The money would be reallocated to the United Nations and aid agencies working to combat poverty among the bulk of Ethiopia's
estimated 77 million people who lived on less than a dollar a day
Ethiopia received about $1.9bn in aid a year - the largest recipient of foreign assistance in Africa
About $700m was for emergency assistance, while the rest was for development programmes. Aid accounts for up to a third of the
government's entire budget.
Britain, Canada, Ireland, Germany, Sweden, the World Bank, European Commission and African Development Bank provided direct budget
support.
Aid in Ethiopia
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The diplomats said that they informed Ethiopian officials about two weeks ago that they would freeze aid to the government until the
political situation improved
Britain announced earlier that it planned to freeze $35.4m in new aid to Ethiopia, ranked the seventh poorest country in the world.
The increase in aid flows in the early 1990s was linked to the fall of the military regime in Ethiopia. The slight decline in recent years
reflects a global decline in aid resources, but the shift in emphasis from relief to development is an additional factor
During the military regime, from 1974 to 1991, aid to Ethiopia was channelled mainly through NGOs, as the regime was out of favour
with donors.
The most significant development in aid to Ethiopia in recent years is the establishment of sector development programmes, which
promise to dramatically improve donor co-ordination and the efficiency and effectiveness of external assistance.
a shifting balance in the proportion of aid allocated to non-governmental organisations (NGOs) and to the government, with most aid now
allocated to the government
great progress in donor co-ordination with the introduction of sector development programmes.