The International Monetary Fund and World Bank have announced that the West African country of Guinea will get $2.1 billion of debt cancelled. This amounts to around two-thirds of the country’s external debt.
Guinea has finally qualified for debt cancellation 12 years after first entering the debt relief scheme.(1) In that time, the government has spent $1.3 billion making debt payments, averaging almost one quarter of government revenue each year.(2)
Under the scheme, most old debts owed to foreign governments, and multilateral institutions such as the World Bank, should now be cancelled. But debts from loans from the last eight years, as well as debts to private creditors, will remain. Debt payments are expected to be between $50 million and $90 million a year for the next decade, averaging 5 per cent of government revenue.(3)
Guinea’s progress through the debt relief scheme has been delayed by internal political conflict, as well as implementation of IMF and World Bank prescribed policies. Conditions for Guinea to qualify for debt relief have included reducing agricultural subsidies and bringing in new laws to facilitate public-private partnerships.(3) Public-private partnerships are known in the UK as the Private Finance Initiative, and have been described by British Deputy Prime Minister Nick Clegg as ‘a bit of dodgy accounting’.(4)
Tim Jones, Policy Officer at Jubilee Debt Campaign, said:
“The debt cancellation announced today “is a major boost to the people of Guinea’s struggle for vital investments in health, education and infrastructure. Whilst Guinea’s political situation made it difficult for debt cancellation to happen sooner, there could have been moratoriums on debt payments to save people from the financial burden. Furthermore, it is disgraceful that the IMF insisted on cuts in agricultural subsidies, and laws on public-private partnerships to be introduced, in return for debt relief.”
Ahmed Sékou Touré ruled Guinea through a one-party dictatorship from independence from France in 1958 until his death in 1984. He was replaced by Lansana Conté, President until his death in 2008. At the end of 2008 a military coup took place. In November 2010 the military were removed from power following Presidential elections won by Alpha Condé. Parliamentary elections have still not been held.
The Guinea government was lent large amounts of money in the 1970s, particularly by foreign governments. Debt payments shot-up in the late 1970s and early 1980s after a sharp increase in US interest rates. The Guinea government received bailout loans from the IMF and World Bank throughout the 1980s and 1990s to enable debts to continue to be paid. In return for these, various free market economic conditions were introduced. But by the late 1990s, Guinea’s economy in per person terms was no bigger than when records began in 1987.(2)
Guinea is off track in meeting many of the Millennium Development Goals, though some progress in cutting poverty is being made:
- The proportion of children underweight increased from 21 per cent in 1995 to 29 per cent by 2000. By 2008 it had fallen again to 21 per cent, well short of the goal to halve it between 1990 and 2015.
- The percentage of children enrolled in primary school has increased from 30 per cent in 1990 to 77 per cent by 2010, but still short of the target of 100 per cent by 2015.
- The proportion of children dying before their fifth birthday has fallen from 23 per cent in 1990 to 13 per cent in 2010, but this is still short of the rate needed to meet the goal to cut deaths by two-thirds by 2015.(5)
Guinea becomes the 34th country to have some debts cancelled under the Heavily Indebted Poor Countries initiative. In total, almost $130 billion has now been cancelled.(6)
1. The debt relief scheme is the Heavily Indebted Poor Countries initiative. Thirty-four countries have qualified for the scheme, and had around $128 billion of debt cancelled. To be eligible for the scheme countries have to have both a large debt and be very impoverished. To qualify for debt cancellation, country’s have to meet economic and governance conditions set by the IMF and World Bank. On qualifying, countries usually get up-to 100 per cent of their debt cancelled owed to the IMF, World Bank, African Development Bank and foreign governments on loans prior to 2003/2004.
2. Calculated from World Bank. Global Development Finance database.
3. IMF. (2012). Guinea: 2011 Article IV Consultation and Requests for a Three-Year Arrangement Under the Extended Credit Facility, and for Additional Interim Assistance Under the Enhanced Initiative for Heavily Indebted Poor Countries—Staff Report; Public Information Notice and Press Release on the Executive Board Discussion; and Statement by the Executive Director for Guinea. March 2012.
6. The 34 countries are Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Republic of Congo, Democratic Republic of Congo, Cote d’Ivoire, Ethiopia, Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Tanzania, Togo, Uganda and Zambia