July 31, 2006
The Paris Club of creditor nations has granted Afghanistan a 67% debt cancellation worth US$1.6 billion; European NGO Eurodad notes, however, that Afghanistan’s debt to Russia is a potential source of contention.
On July 19, the Paris Club of creditor nations granted Afghanistan a 67% debt cancellation worth US$1.6 billion in arrears, late interest and maturities up until 2009.
Under the deal, described as a ‘Naples Terms’ agreement (a deal awarded the Club’s most concessionary rates), Afghanistan’s US$8-billion debt has been rescheduled for repayment over 23 years, and provides for a deferral of 100 percent of moratorium interest (the interest due during the grace period). Afghanistan is not set to begin paying anything until 2011.
In its analysis of the deal, the European NGO network Eurodad said that while it “may seem impressive and generous,” the debt cancellation must be considered alongside the US$11.3 billion that constitutes Afghanistan’s overall Paris Club debt stock, most of which is owed to Russia. Eurodad highlights the Russian debt as a potential source of contention because the debt was incurred during the years of Afghanistan’s Soviet occupation – a point that “raises fundamental questions about its very legitimacy in the first place,” said Eurodad, adding that:
“A sentence in the [Paris Club] press release – as usual a very dry and seemingly ‘technical’ document – is extremely important to point out. It is indeed specified that, ‘This treatment is a first step in the implementation of the commitments made by the Governments of Germany, the Russian Federation and the United States of America on the occasion of the London conference on Afghanistan of 31 January 2006, to cancel 100% of Afghanistan’s debt within the context of a successful implementation by Afghanistan of the HIPC initiative process, subject to their domestic legal requirements.'”
Eurodad calls this acknowledgment “very interesting” because “it proves once again that the HIPC list – with all it shortcomings linked to economic conditionalities and external impositions – can basically be ‘re-opened’ at any time, if there is the political will to do so.
“Moreover, it shows that the final goal being already firmly decided on the political level, the Paris Club process, with its terms and conditions, is just a mechanism forcing the beneficiary country to stick to the path designed from the outside by the IFIs,” continues Eurodad. “A further proof of the unfair one-sidedness of the present international debt architecture.”