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State Secretariat for Economic Affairs (SECO) Outline

1. Switzerland‘s debt relief program. 2. The world after “HIPC”:

− Responsible borrowing; − Responsible lending;

− More effective support for debt manage- ment; and

− Further considerations on debt distress. 3. A final question.

A pioneering and multi-faceted approach: 1. Bilateral debt relief:

− ODA debt cancellation and grant-only policy (1978–85);

− Publicly guaranteed commercial debt (1992-93);

− Buy-back of “tail-end” non-guaranteed debt (1992–93);

− Debt conversion funds (1994-present). 2. “International” commercial non-guaranteed

debt (IDA debt reduction facility).

3. Multilateral debt relief (Arrears, HIPC, MDRI).

4. Complementary measures (BOP, Capacity Building).

Sustainable borrowing is responsible borrowing: • Maintaining prudent macroeconomic policies; • Legal and institutional frameworks for debt

management;

• Homegrown financing strategies; • Capacity to analyze debt sustainability;

• Comprehensive data collection processes and systems;

• Own assessment of needs and priorities for support;

• Most importantly: upstream capacity to ap- praise projects and programs that are to be fi- nanced.

Responsible lending is in creditors’ interest: • Conform to rules and best practice during due

diligence processes (DSF, regional or national debt limits);

• Critically examine incentives for unproductive lending;

• Leadership role of multilateral institutions in advising on sustainability thresholds;

• Promote good lending practices and engage with “new lenders”;

• Facilitate and support creditor conciliation. Engaging into effective support for debt manage- ment:

• Demand-driven approach and sound diagnos- tics;

• Building on / learning from existing initia- tives;

• Support national and regional capacity as is most cost-effective;

• Facilitate cross-country networks and infor- mation exchange platforms (COPs).

Engaging into effective support for debt manage- ment:

• Demand-driven approach and sound diagnos- tics;

• Building on / learning from existing initia- tives;

• Support national and regional capacity as is most cost-effective;

• Facilitate cross-country networks and infor- mation exchange platforms (COPs).

Further considerations

• Anticipating exogenous shocks through multi- lateral or commodity-based facilities.

Unofficial and unedited compilation of presentations made during UNCTAD’s sixth Debt Management Conference

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• Reexamining the international financial infra- structure’s capacity to resolve sovereign de- faults.

Do HIPC and MDRI end with the last gradua- tion to completion point?

The initiatives have clear objectives of poverty reduction: impact of past and present debt relief needs to be regularly assessed:

Audio transcript:

I would just like to complement colleagues’ views as a small donor who has been active in debt relief for more than 20 years, and bring about some experience from our view about what the world would look like after HIPC and MDRI for that matter.

I will skip the outline and I will just go through the slides very quickly. A note on Switzerland’s pro- gramme which started about 20 years ago, so quite early. I think that we were one of the first countries to engage in a comprehensive bilateral debt programme. To be fair, this was not really at the initiative of the bureaucracy or technocracy. This was the initiative of NGOs – some of them are here in this room – Swiss NGOs, which triggered the whole process. But I would like to think that we are quite swift in devising a pro- gramme that tackled some of the main issues. What was interesting about this Programme, because it has a link to recent initiatives, was debt conversion funds which linked debt relief to poverty reduction, with all the disadvantages of small projects and small pro- grammes and related transaction costs, but it gave to our tax payers some visibility to our tax payers about debt relief reaching some real people and having a real impact. Also, part of that programme was a local or national buyback, commercial and non-guaranteed buyback programme which was quite innovative at that time. I think that this helped us engage into a more sub- stantive international discussion on future debt relief initiatives.

Last (no. 4 here) is what we call complementary meas- ures. On the one side, Balance of Payments support for those countries that weren’t in debt problems but were still subject to exogenous shocks and there is no reason why they should be penalized and, second and most importantly, capacity building initiatives to start early, to pre-empt a new problem following this.

Just four areas for the world after HIPC as we perhaps would like to see it. Sustainable borrowing as responsi- ble borrowing. We put it first knowingly. This is not to be contrary to the intervention by Professor K about corresponsibility but in a prospective fashion from now looking at the future we generally think that responsible borrowing ownership by the countries is the sine quo

condition of these whole processes. The sine quo con- dition for unsustainable debt to not reemerge. Even though lenders do have a responsibility and I will come back to that later also. But this is the focus and as you will see from this long list and as we heard from our colleague from Uganda, the post HIPC world is much more complex than the pre-HIPC world so it is a tall agenda we have here in terms of responsible borrowing starting from the legal institutional frameworks to homegrown financing strategies. I will just stress this in saying that these strategies as our Uganda colleague pointed out are not only about external debt. They are about domestic debt. They are about grant financing. They are also about domestic revenue mobilization and some sort of coherent fiscal framework. So this sort of strategic approach devised by the countries themselves is an absolute priority as far as we are concerned. The other issues related to debt sustainability analysis, data collection processes and so on have been discussed already. Responsible lending or responsible aid and I haven’t put it here (slide ref) is also clearly providing concessional or grants resources for financing MDG. And Switzerland pays its share there like many others in this room. In terms of lending, again, trying to have lenders conform to rules and best practices – including due diligence process, critically examine incentives for unproductive lending in our own schemes and this is all work in progress. These are all principles which are easy to write down as broad principles. When it comes down to apply them very concretely they are much more difficult. We are working and I am sure other colleagues are also working on a daily basis to become more responsible lenders.

Obviously recognizing the leadership role of multilat- eral institutions in advising on xxx roles and advising the whole system to address this…. And promote good lending practices and engage ourselves with the new lenders. And finally facilitate and support creditor con- ciliation. This is something that we do also and quite regularly. Like now, for instance, in Liberia where we support a commercial creditor conciliation process. Re. Effective support for debt management. Maybe at the beginning of the HIPC initiative this issue was a little bit neglected. People were very busy trying to reconcile the data, trying to just figure out the numbers – how much debt was out there. The whole manage- ment aspect was perhaps set aside. We, with other bi- laterals, have been very active in trying to support this as the only exit, possible exit for unsustainable debt and again we welcome recent initiatives like that of the World Bank to also engage into this very, very impor- tant topic. We believe that the approach should be de- mand driven. The country should be in the lead. There should be sound diagnostics and again the Bank is do- ing very useful work in this area. We should build and learn on the existing initiatives and not start from scratch. We just learned about the progress of how Uganda has gone about during the last 10 years devis- ing their own strategy. I would like to think that they have perhaps received some help from regional organi-

zations or partners for that. So there are some things which have worked which we need to build on. And also facilitate cross-country networks, information plat- forms, communities of practitioners and UNCTAD has certainly a role to play there. Finally a few further con- siderations. The issue of exogenous shocks, that debt distress is not only about inadequate lending or inade- quate borrowing or poor capacity. There are some ex- ogenous factors for sure. And I certainly join Prof ? on this one. There are also market based solutions for these shocks which are perhaps not available to all countries but to a bigger amount of counties. And also a constant re-examination of the international financial infrastructure to resolve sovereign defaults because these will happen again for sure.

Now the final question which I would like to put to the room is if indeed HIPC… the last graduation to com- pletion point. Yes technically, but these initiatives have clear objectives in terms of poverty reduction and I think that we still fall short of assessing the impact of those initiatives and we owe it collectively to the bene- ficiaries and the citizens of the beneficiary countries and the financiers – our tax payers – we owe it to them that we look critically in a couple of years or regularly to really look at what was achieved by the fiscal space, as small as it might be, which was facilitated with this process.

Panel 5