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Permanent Mission of the Republic of the Philippines to the United Nations
TURNING DEBT INTO INVESTMENTS AND FINANCING THE MDGs
New York, 11 October 2005
The Philippine delegation associates itself with the statement by the distinguished representative of Jamaica on behalf of the Group of 77 and of Indonesia on behalf of the ASEAN. I would like to take this opportunity to thank the Secretary-General for his reports on the international financial system and development and on external debt crisis and development.
The noblest cause of all is out of the pit of poverty. And for us in the Second Committee, the most important problem is how to finance poverty alleviation programs.
But we cannot get out of poverty if the net transfers of international financial resources go instead to developed countries. While the net private flows to developing countries have improved over the past years, they are not substantial enough to make a dent in achieving the development agenda, particularly at this stage, where developing countries feel the crunch posed by increasing prices in oil and energy.
What we need is to think of innovative ways to address our debt problem and creative means to financing our development goals. The international community must be ready to organize deeper, wider and faster debt relief to help the LDCs, and low- and middle-income developing countries to relentlessly fight poverty.
Debt-for–equity in MDG projects does not call for debt forgiveness. It is neither debt cancellation, nor debt moratorium. It requires no new monies from the parliaments and governments of the rich countries. Neither does 'debt-for-equity in MDG projects' envisions any reduction or loss of face-value in the creditor's financial asset. Furthermore, participation by the creditors is voluntary. And creditors have the option to choose which MDG projects to support.
What we propose is for the rich countries, multilateral institutions, and large commercial banks to plough back into the economies of the debtor-countries 50 percent of an agreed-on portion of the debt-service payments due them. These payments would be plowed back in the form of equities, or other kinds of financial assets, and channeled toward MDG programs – such as reforestation, mass-housing, safe water systems, hospitals, infrastructure, or micro-financing.
The "Debt-for-equity in MDG Projects" program will be backed by tangible assets – most of which should be value-creating, job-generating, and tradable in themselves. Under this scheme, the debt service and/or principal amount is merely converted into equities in new or existing projects of at least equal value, and with their own earnings potential.
We propose that the World Bank, IMF, ADB, and G-8 countries, consider converting portions of debt into equity for MDG projects. This provides an opportunity for lenders to become shareholders.
Debtor-countries like the Philippines can readily offer specific economic and social projects as the object of debt-for-equity in MDG investments. These may include:
Positive Response in Western Europe
So far, the Philippines has received positive feedback from the Italian Government through Prime Minister Silvio Berlusconi, who agreed to "give favorable consideration to the Philippine proposal – once [it] is submitted to the Paris Club."
For its part, the German Government, through Chancellor Gerhardt Schroeder, has promised that Germany "will work to ensure your proposals are discussed openly and constructively in the Paris Club." The President of the Paris Club, M. Jean-Pierre Jouyet, has decided to create immediately a "Technical Committee" of experts to evaluate the Philippine proposal for presentation to the Club's 21 member-states. Senior Treasury officials on the International Poverty Reduction Team in London gave assurance also that they would consider the proposal in the Paris Club.
In addition to governments and institutions, the Asian Development Bank has also expressed readiness to collaborate with the Philippines to realize this proposal. No less than Secretary General Kofi Annan encouraged the Philippines to share this idea widely, mentioning that the "…proposal to broaden the scale and scope of debt swaps would help provide debt relief and release additional funds for financing sustainable development activities that are key to achieving the Millennium Development Goals."
As Professor Dani Rodrik told the Second Committee last Friday, "successful growth strategies require policy experimentation" and "willingness to try unconventional solutions." The Debt-for-equity in MDG Projects will help transform debt into investments and from investments to job creation, and into generation of full-scale economic activities that will help achieve our economic development goals. We need the political will of developed and developing countries to give this option a chance to help achieve the MDGs by 2015.
I thank you, Mr. Chairman.
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