The recent G8 agreement on debt relief for the poorest nations was a positive step.

EU member States recently agreed to support the G 8 agreement to write off debt.

Agreement by the G 8 to debt relief is a major event, but we should not be fooled by the seeming magnanimity of the gesture much of the debt would not have been repaid in any case. More debt relief encompassing more countries and more debt (including bilateral debt) is needed.

We recognize that the agreement does not cover bilateral debt and debt owed to other multilateral credit institutions, and we call for measures to address those issues in order to address the debt burden in Africa comprehensively.

The Paris Club Agreement with Iraq of November 2004 represents a significant step towards long term debt sustainability.

However, a goodwill clause was included in the final agreement, stipulating that creditors were ready to review Gabon's debt situation in 2005.

The value of innovative sources of financing for development had been recognized and agreement had been reached on considering additional measures to ensure long term debt sustainability through increased grant based financing, cancellation of the official multilateral and bilateral debt of Heavily Indebted Poor Countries, and debt relief or restructuring for low income and middle income developing countries with unsustainable debt burdens.

Belgium, Italy, Norway and the United Kingdom of Great Britain and Northern Ireland have also contributed to the Multilateral Debt Trust Fund managed by the World Bank, and Italy and the Russian Federation have entered into a bilateral debt alleviation and cancellation agreement with Burundi

In that regard, Malaysia welcomes the agreement by the Group of 8 to cancel the debt of the 18 poorest countries, the majority of which are in Africa.

Debt sustainability and debt relief

On 29 June 2005, the Paris Club creditors announced their agreement to enter into negotiations with Nigeria on a comprehensive exit debt treatment, which would include debt reduction up to Naples terms on eligible debts and a buy back at a market related discount on the remaining eligible debts.

Most economists failed to foresee the economic dynamics that actually led to the crisis, because they failed to pay enough attention to the rapid increase in US total debt. Instead, they focused exclusively on US foreign debt, ignoring household debt (mortgage and consumer debt), public debt, business debt, and financial debt.

The delay in reaching an agreement enabled most private creditors to escape the consequences of their reckless lending to Greece. Roughly half of Greece s external debt migrated from the private sector to official institutions.

However, the achieved surplus fell significantly short of the 6 per cent target specified under the Paris II agreement and gross public debt had increased to 35.9 billion by the end of the year.

Debt

Debt

Options for lower debt burdens on Governments of heavily indebted developing countries include debt cancellation and debt swaps for sustainable development.

After Argentina s unilateral default in 2001, many investors saw more clearly the need to allow explicitly for less drastic alternatives ahead of time, and so incorporated so called collective action clauses into debt contracts. If the borrower runs into trouble, CACs make it possible to restructure debt with the agreement of a substantial majority of creditors (usually around 70 ).

The agreement continues to require primary budget surpluses (net of interest payments), rising to 3.5 of GDP by 2018, which will worsen Greece s slump. Re profiling the country s debt, which is implicitly part of the agreement, will do nothing to ameliorate this, given that interest payments already are minimal through the end of the decade.

However, in January 2005, the Government of the Syrian Arab Republic reached an important agreement with the Russian Federation whereby 73 per cent, or 9.8 billion of its net debt to that country, was written off.

We welcome the recent G 8 Africa Action Plan, which promises debt relief, increased aid flows, a commitment to improving global market access for African exports, and an agreement to provide medical assistance to the continent.

To address the debt burden problem, many African countries at first resorted to repeated debt rescheduling which focused on debt service flows, resulting in steadily increasing debt stocks and related service payments.

External debt

Debt relief

External debt

Debt relief, debt swaps or debt cancellation could offer important means for mobilizing resources for accelerating progress towards the water and sanitation goals.

Successor Agreement to the International Agreement on

(d) Debt burden

Restructuring Debt Restructuring

Europe s Debt Wish

China s Green Debt

Debt and Democracy

Does Debt Matter?

The Debt Delusion

Debt Without Drowning

Other debt renegotiations

Haiti External debt

External public debt

Noting with concern the continuing debt and debt servicing problems of heavily indebted developing countries as constituting an element that adversely affects their development efforts and economic growth, and stressing the importance of alleviating once and for all, where applicable, their onerous debt and debt service burden with the aim of attaining a sustainable level of debt and debt service,

Debt reduction, either through stock of debt reduction or debt service reduction based on a concessional rescheduling, will continue to be considered only in exceptional cases.

American policymakers have another major difficulty the US Congress. The last minute agreement to raise the US debt ceiling and reopen the government has left Republican Party extremists in a weakened position, while President Barack Obama has emerged strengthened.

Emphasizing the important role that private sector creditors play in debt relief and debt sustainability,

Africa needs debt cancellation, as no growth can take place with a heavy debt burden.

In addition to estimating financing gaps and identifying the sources of financing (including different scenarios of debt rescheduling), DSA includes an analysis of debt dynamics to determine the stability of debt to GDP or debt to government revenue ratios.

The objective is to tailor debt restructuring to the financial needs of the country concerned and to ensure debt sustainability and an exit from Paris Club debt reschedulings.