PFDD Report - "Two decades of C2Ds - An assessment of the debt reduction-developement contracts, France's debt-swap mechanism"
PFDD (French Debt and Development Platform) shared this report , which is the result of a year of research, coordinated by a consultant, Olivier Blamangin. The idea was to update the data on C2Ds and above all to redefine the position of the French platform on this debt swap mechanism in particular, but also to have elements of criticism in the event of new debt-swap mechanisms in the future. After 20 years of implementation, the outcomes of the Debt Reduction-Development Contracts back up the PFDD’s initial analysis that they were not – and still are not – a satisfactory response to the debt crisis and the financing needs of developing countries. In fact, many beneficiary countries are now more indebted than they were at the beginning of the 2000s, and some are in critical debt distress.
- The mechanism does not provide for real cancellation, as the legal and financial link between debtor and creditor is not broken and the refinancing by grants can be stopped at any time. This latter feature is of little consequence if the beneficiary country is able to ensure its debt-service payments regularly. But with the new overindebtedness crisis and the DSSI (2020-2021), C2Ds have been effectively suspended even though a third of commitments have not been refinanced.
- By ruling out outright cancellation of all or part of its ODA debt obligations, France has refused to acknowledge its co-responsibility for the way in which these countries’ debt has accumulated.
- The fact that C2Ds are linked to the timetable and conditionalities of the HIPC Initiative has led to numerous postponements in the signing of the first contracts, but France has always refused to distance itself from the macroeconomic conditionalities (structural adjustment programmes) imposed by the international financial institutions. This is why it took 13 years for all the eligible countries to reach their ‘completion point’ and receive the promised refinancing. Countries whose debts were considered ‘unsustainable’ therefore continued to repay their debts, including for debt obligations contracted under ODA that the French government had announced would be cancelled. From this point of view, France has not respected its initial commitment to total cancellation.
- These delays are accompanied by a great lack of clarity in the nature of the debt-service payments refinanced. At the end of 1999, the government announced that €3.7 billion in debt obligations (in nominal value) were involved. In the end, it is expected that nearly €5.4 billion will be repaid and refinanced. These amounts have thus been artificially inflated by interest payments and by the inclusion of arrears accumulated by some eligible countries pending their completion point.
- C2Ds provide significant additional resources to beneficiaries, but they have – in part and in varying proportions depending on the country – replaced other flows of French ODA. The initial commitments to full additionality of refinancing through grants have not been fully met.
- For the largest C2Ds, project aid has been systematically favoured over sectoral budget support, with specific arrangements that run counter to the principles of ownership, alignment and harmonisation of aid.
- For the largest C2Ds, the mechanism is a tool of influence accepted as such by the French public authorities and sometimes used to support French economic interests. Officially, C2Ds are aligned with the beneficiary’s national priorities. But the contracts were negotiated without discussions, during diplomatic negotiations behind closed doors. The parliaments and civil societies of the countries involved have been excluded from the discussions.
- C2D financing has been mainly earmarked for poverty-reduction programmes. However, allocation choices are also the result of diplomatic compromises, of priority given to rapid disbursements or of a desire for visibility, with ‘proper use’ of funds too often being summed up as simply the ‘securing’ of the spending circuit. The fact that priorities and orientations of the C2Ds have not been discussed has meant that the development models underlying the programmes financed have likewise not been discussed.
- In Cameroon and Côte d’Ivoire, it was possible for national platforms of civil society organisations to set up independent monitoring projects with C2D funding. These mechanisms are a response to the need for accountability in the use of public funds. They also act as levers for citizen participation and mobilisation in C2Ds and, more broadly, for citizen oversight of public policies. They help strengthen and structure civil society as well as create spaces for dialogue with public authorities. They are essential components for enabling civil society involvement in C2Ds, which was not extended to all the beneficiary countries. The presence of representatives of peer-appointed civil society organisations in the governance bodies of the system is, when accepted, also real progress. However, the commitments to ‘fully involve civil society’ in implementing C2Ds have not been met.
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