Britain cancels debt in response to floods

A decision by Britain to cancel Mozambique's debt will only make a significant difference to the flood-ravaged country if other European Union (EU) members do the same, the debt cancellation lobby group Jubilee 2000 told IRIN on Tuesday.

However, Lucy Matthew of Jubilee 2000 said the announcement by Britain this week that it would write off the US $150 million the impoverished country owes in bilateral debt was a step in the right direction. "This is an important political tool that both Britain and debt cancellation lobby groups can use to pressure the other multilateral creditors like the IMF,
the G7 countries and World Bank to cancel Mozambique's debt," Matthew said.

According to 1999 figures, Mozambique's debt to multilateral institutions such as the International Monetary Fund and the World Bank amounted to about US $2.8 billion. Matthew said although Britain has clout in the two institutions through its chairmanship of an IMF committee, it has no power to force the institutions to follow its lead.

Said Matthew: "The other EU members need to follow Britain's lead and cancel Mozambique's debt, which could add momentum to the debt cancellation efforts." She added that Mozambique, which had been posting impressive growth figures as it recovered from years of civil war, also owes other non-EU countries such as Russia and Brazil.

Jubilee 2000 stated recently that 50 percent of Mozambique's debt is owed to bilateral creditors, with Russia, Italy and France being the biggest of these. Matthew said France is owed US $400 million while Italy has lent Mozambique US $504 million.

Britain's decision to cancel Mozambique's debt was taken late last year and was to have been effected in April. This was, however, brought forward because of the devastation suffered by the country as a result of the current flood disaster that has wiped out the development gains of recent years and left at least 200,000 people homeless.

Matthew added that two reasons might have prompted Britain to cancel the debt: "Firstly, it is cheaper for Britain to cancel the debt owed by Mozambique since the government realised that it would be difficult for the country to repay the debt." The second reason, she said, relates to the success of the debt cancellation campaign in swaying opinion among donor governments.