debt for education swaps - unesco · working group for debt for education swaps daniel filmus ......

Debt for Education SwapsDebt for Education Swaps

Working Group for Debt for Education SwapsWorking Group for Debt for Education Swaps

Daniel FilmusDaniel Filmus

Minister of Education, Science and Technology, RepMinister of Education, Science and Technology, Repúública Argentinablica Argentina

November 27, 2006November 27, 2006

UNESCO, ParisUNESCO, Paris

IntroductionIntroduction

More than a decade of international declarations.More than a decade of international declarations. Three years ago a global movement began to Three years ago a global movement began to

emerge:emerge: 3232ndnd and 33and 33rdrd sessions of the General Conference of sessions of the General Conference of

UNESCO: proposal and establishment of the Working UNESCO: proposal and establishment of the Working Group.Group.

Purpose of presentation: provide tools for Purpose of presentation: provide tools for discussing and promoting debt for education swaps discussing and promoting debt for education swaps within the context of the international commitment within the context of the international commitment to Education For All. to Education For All.

What follows is 10 questions and answers.What follows is 10 questions and answers.

1. Why invest in education?1. Why invest in education?


Arguments for investing in educationArguments for investing in education

Ethical perspectiveEthical perspective

Economic perspectiveEconomic perspective

Social perspectiveSocial perspective

Political perspectivePolitical perspective


International consensus on education International consensus on education as a priority investmentas a priority investment

Danger of not meeting the Millennium Development GoalsDanger of not meeting the Millennium Development Goals

Education for All World Conference (Jomtien, Thailand, Education for All World Conference (Jomtien, Thailand, 1990)1990)

World Education Forum (Dakar, Senegal, 2000)World Education Forum (Dakar, Senegal, 2000)

UN Millennium Development Goals (New York, USA, UN Millennium Development Goals (New York, USA, 2000)2000)

2. What is the state of education in 2. What is the state of education in developing countriesdeveloping countries??

2. What is the state of education?2. What is the state of education?

Education For All Monitoring Report:Education For All Monitoring Report: steady progress steady progress made, especially towards universal primary education (UPE) made, especially towards universal primary education (UPE) and gender parity, but pace is insufficient and gender parity, but pace is insufficient

Encouraging trends:Encouraging trends: Globally, 47 countries have achieved UPE. Globally, 47 countries have achieved UPE.

20 additional countries are on track to achieve UPE by 201520 additional countries are on track to achieve UPE by 2015

Challenges which remain:Challenges which remain: 44 countries are making progress but unlikely to achieve UPE44 countries are making progress but unlikely to achieve UPE

23 countries at risk of not achieving UPE by 201523 countries at risk of not achieving UPE by 2015

~100 million children are not enrolled in primary school~100 million children are not enrolled in primary school

2. What is the state of education?2. What is the state of education?

Financial situation of the education sectorFinancial situation of the education sectorEncouraging Trends:Encouraging Trends: Public spending increased in ~70 countries Public spending increased in ~70 countries

Aid for basic education more than doubled between 1999Aid for basic education more than doubled between 1999--2003 2003 and could rise to US$3.3 billion per year by 2010 and could rise to US$3.3 billion per year by 2010

RemainingRemaining Challenges:Challenges: Public spending on education represents higher proportion of Public spending on education represents higher proportion of

GDP in rich countries that have already achieved EFA goals GDP in rich countries that have already achieved EFA goals

At US$4.7 bn in 2003, bilateral aid to education increased sinceAt US$4.7 bn in 2003, bilateral aid to education increased since1998 but remains well below 1990 high of US$5.7 bn. 1998 but remains well below 1990 high of US$5.7 bn.

Total aid to basic education accounts for only 2.6% of ODA.Total aid to basic education accounts for only 2.6% of ODA.

3. What is the nature of the debt 3. What is the nature of the debt problem?problem?

3. What is the nature of the debt problem?3. What is the nature of the debt problem?

Size of debt:Size of debt: Total developing world debt: US$2,800.4 bnTotal developing world debt: US$2,800.4 bn

This figure should be contrasted with:This figure should be contrasted with:

Official Development Assistance (ODA) to developing Official Development Assistance (ODA) to developing countries was US$106.5 bn (2005), its highest level ever. countries was US$106.5 bn (2005), its highest level ever.

Global military spending and the arms trade: over US$975 Global military spending and the arms trade: over US$975 bn in 2004bn in 2004

Impact of the debt on education spending:Impact of the debt on education spending: 5 of the 8 developing countries in UNESCO Working 5 of the 8 developing countries in UNESCO Working

Group: debt servicing surpasses education spending. Group: debt servicing surpasses education spending.

4 countries: the cost of servicing the debt surpasses the 4 countries: the cost of servicing the debt surpasses the combined cost of education and health spending.combined cost of education and health spending.

3. What is the nature of the debt problem?3. What is the nature of the debt problem?

A large proportion of A large proportion of longlong--term debt (78% of term debt (78% of total debt) is in private total debt) is in private hands.hands.

Significant in the context Significant in the context of debt reduction: debt of debt reduction: debt swaps are generally linked swaps are generally linked to bilateral debt programs. to bilateral debt programs.

Breakdown of Developing Countries Debt by type of CreditorBreakdown of Developing Countries Debt by type of Creditor

Multilateral Debt17%

Bilateral Debt18%

Private Debt65%

4. What are the main initiatives 4. What are the main initiatives aimed at debt relief?aimed at debt relief?

4. What are the main initiatives aimed at debt relief?4. What are the main initiatives aimed at debt relief?

I. Relief of Debt Owed to Multilateral CreditorsI. Relief of Debt Owed to Multilateral Creditors Traditionally, multilateral debt not subject to cancellation. Traditionally, multilateral debt not subject to cancellation.

1996: World Bank and IMF launched the Highly Indebted Poor 1996: World Bank and IMF launched the Highly Indebted Poor Countries (HIPC) InitiativeCountries (HIPC) Initiative

Debt reduction packages have been approved for 29 countries, 25 Debt reduction packages have been approved for 29 countries, 25 of them in Africa, providing ~US$40of them in Africa, providing ~US$40 bn in debt service relief. bn in debt service relief.

Initiative is heavily criticized for: Initiative is heavily criticized for: Not canceling large enough amounts of debt, Not canceling large enough amounts of debt,

Placing unfair conditions, Placing unfair conditions,

For being slow in implementation, and For being slow in implementation, and

For not including highly indebted, middleFor not including highly indebted, middle--income countries that have a income countries that have a large proportion of their populations living in poverty. large proportion of their populations living in poverty.

4. What are the main initiatives aimed at debt relief?4. What are the main initiatives aimed at debt relief?

II. Relief of Debt Owed to Bilateral CreditorsII. Relief of Debt Owed to Bilateral Creditors All bilateral debts can be subject to cancellation or All bilateral debts can be subject to cancellation or

conversion (with certain restrictions).conversion (with certain restrictions).

Paris Club: informal group of 19 creditor governments. Paris Club: informal group of 19 creditor governments.

Paris Club debt swap clause Paris Club debt swap clause normally permits, on a voluntary normally permits, on a voluntary basis, the swap of 100% of ODA debt and up to a maximum of basis, the swap of 100% of ODA debt and up to a maximum of 30% or US $40 30% or US $40 mnmn of nonof non--ODA debtODA debt. .

Development assistance nature of most bilateral debts Development assistance nature of most bilateral debts makes them more open to cancellation or swap.makes them more open to cancellation or swap.

5. What are debt for education swaps?5. What are debt for education swaps?


Definition:Definition: Exchange of external debt cancellation for Exchange of external debt cancellation for investment in the education sector of the debtor country. investment in the education sector of the debtor country.

Objective:Objective: Double objective of a debt for education swap: Double objective of a debt for education swap: 1.1. Mobilize additional resources for an education Mobilize additional resources for an education

related project.related project.2.2. Reduce the external debt.Reduce the external debt.

Origin:Origin: After debtAfter debt--forfor--nature swaps emerged during the nature swaps emerged during the 1980s, governments and NGOs began to initiate debt 1980s, governments and NGOs began to initiate debt swaps under various names: debtswaps under various names: debt--forfor--education, debteducation, debt--forfor--health, debthealth, debt--forfor--child survival, etc. child survival, etc.


After a decade of international calls, a movement After a decade of international calls, a movement emerged 3 years ago:emerged 3 years ago:

October, 2003:October, 2003: 32nd session UNESCO's General Conference32nd session UNESCO's General Conference

November, 2003November, 2003: XIII Iberoamerican Summit of Heads of States : XIII Iberoamerican Summit of Heads of States and Governmentsand Governments

January, 2005January, 2005: Spanish President, Jose Luis : Spanish President, Jose Luis ZapateroZapatero

October, 2005October, 2005: 33rd session UNESCO: 33rd session UNESCO’’s General Conferences General Conference

April/May 2006April/May 2006: Euro: Euro--Latin AmericanLatin American--Caribbean Civil Society Caribbean Civil Society Forum and Vienna Summit for Presidents of the European Union, Forum and Vienna Summit for Presidents of the European Union, Latin America and the CaribbeanLatin America and the Caribbean

November 2006:November 2006: XVI Iberoamerican Summit of Heads of States XVI Iberoamerican Summit of Heads of States and Governmentsand Governments

6. What are the mechanisms for 6. What are the mechanisms for debt for education swaps?debt for education swaps?

6. What are the mechanisms?6. What are the mechanisms?

Two main models: Two main models: bilateral swapsbilateral swaps and and triangular swapstriangular swaps. . Difference usually depends on the type of debt being swapped Difference usually depends on the type of debt being swapped

((private debtprivate debt or or public debtpublic debt))

In the past there have been more triangular swaps than bilateralIn the past there have been more triangular swaps than bilateral swaps, swaps, with bilateral swaps tend to result in greater sums of investmenwith bilateral swaps tend to result in greater sums of investment. t.

1. Bilateral Swaps1. Bilateral SwapsCreditor government Creditor government agrees to reduce the ODA agrees to reduce the ODA debt of a debtor country in debt of a debtor country in exchange for the debtor exchange for the debtor governmentgovernment’’s investment s investment in education. in education.

2. Triangular Swaps2. Triangular SwapsAgreement is made between at least 3 actors: a Agreement is made between at least 3 actors: a creditor (usually a foreign bank), a debtor creditor (usually a foreign bank), a debtor government, and an investor (an international government, and an investor (an international development organization such as an NGO or a UN development organization such as an NGO or a UN agency). A 4th actor may be involved: a developed agency). A 4th actor may be involved: a developed country government or an international organization country government or an international organization which provides funds. which provides funds.

6. What are the mechanisms?6. What are the mechanisms?

Majority of swaps result in creation of a Majority of swaps result in creation of a Counterpart fund (CPF)Counterpart fund (CPF)::

A fund established with the local currency made A fund established with the local currency made available by the swap, which will then be invested in available by the swap, which will then be invested in

an agreed upon education projectan agreed upon education project. . Administration of the CPF is of critical importance for Administration of the CPF is of critical importance for

credibility, the survival, and the performance of swaps. credibility, the survival, and the performance of swaps.

Essential to ensure autonomy, transparency, and Essential to ensure autonomy, transparency, and accountability.accountability.

CPFsCPFs with greatest success are administrated by a committee with greatest success are administrated by a committee with shared representation among the debtor government, with shared representation among the debtor government, the creditor government, and civil society.the creditor government, and civil society.

7. What successful cases are there 7. What successful cases are there of debt for education swaps?of debt for education swaps?

7. What successful cases are there?7. What successful cases are there?

Spain is the leading donor participating in bilateral swaps:Spain is the leading donor participating in bilateral swaps: 2004: Spanish President, Jos2004: Spanish President, Joséé Luis Luis ZapateroZapatero announcementannouncement

After initiating talks with Argentina, Spain began negotiating wAfter initiating talks with Argentina, Spain began negotiating with ith other regional countries: Ecuador (US$50 million), Nicaragua other regional countries: Ecuador (US$50 million), Nicaragua ($38.9 m), Honduras ($138.3 m) y El Salvador ($10 m). ($38.9 m), Honduras ($138.3 m) y El Salvador ($10 m).

In 2006, Bolivia, Guatemala, Peru and Paraguay added to list of In 2006, Bolivia, Guatemala, Peru and Paraguay added to list of beneficiaries of Spanish debt swaps, estimated to total US$436m.beneficiaries of Spanish debt swaps, estimated to total US$436m.

Programs include: construction of education facilities, the openPrograms include: construction of education facilities, the opening ing of new institutes, providing materials, and other investments of new institutes, providing materials, and other investments within the sector.within the sector.


El Salvador President Tony El Salvador President Tony SacaSaca proposes swap to Spain President Jose Luis proposes swap to Spain President Jose Luis ZapateroZapatero

El Salvador Ministry of Education begins formulating the projectEl Salvador Ministry of Education begins formulating the project

El Salvador Ministry of Finance contacts Director of InternationEl Salvador Ministry of Finance contacts Director of International Finance (Spain) to negotiate al Finance (Spain) to negotiate the servicing of the debt and the nature of the swapthe servicing of the debt and the nature of the swap

Swap is set at US $10 million (with $6.3 million paid in advanceSwap is set at US $10 million (with $6.3 million paid in advance in 2006) to be deposited in a in 2006) to be deposited in a special accountspecial account

Swap agreement is signed in San Salvador. The administration andSwap agreement is signed in San Salvador. The administration and operational mechanisms are operational mechanisms are approved. Project profiles and an annual payment plan are presenapproved. Project profiles and an annual payment plan are presented. ted.

Law proposal is presented to El Salvador legislatureLaw proposal is presented to El Salvador legislature

Project profiles are presented to the Binational and Technical CProject profiles are presented to the Binational and Technical Committeesommittees

Payment of resources for carrying out Project: construction and Payment of resources for carrying out Project: construction and renovation of education renovation of education facilities and educational materials for the most marginalized rfacilities and educational materials for the most marginalized regions of El Salvadoregions of El Salvador

Case Study: Bilateral Swap between Spain and El SalvadorCase Study: Bilateral Swap between Spain and El Salvador2005

June

July

Aug

Sept

Nov

2006Jan

Feb

Mar


GermanyGermany--Indonesia Bilateral Debt Swap:Indonesia Bilateral Debt Swap: First swap conducted, 2002: Germany waived Indonesia's ODA First swap conducted, 2002: Germany waived Indonesia's ODA

debt of 25.6 million euros on the condition that Indonesia debt of 25.6 million euros on the condition that Indonesia government invest half that amount, i.e., 12.8 million euros, togovernment invest half that amount, i.e., 12.8 million euros, toimprove basic education. improve basic education.

Project chosen: establish 510 training Project chosen: establish 510 training centrescentres for biology teachers, for biology teachers, with teaching materials and equipment. More than 30,000 primary with teaching materials and equipment. More than 30,000 primary schools with over four million pupils benefit from this scheme. schools with over four million pupils benefit from this scheme.

Two further debt swaps of 25 million euros each are in process.Two further debt swaps of 25 million euros each are in process.


Successful Multilateral Debt Swap ProgramSuccessful Multilateral Debt Swap Program PolandPoland’’s s EcoFundEcoFund could serve as model for future debt swaps. could serve as model for future debt swaps.

1992: Poland developed largest counterpart fund in history, agre1992: Poland developed largest counterpart fund in history, agreeing to eing to 50% reduction of its Paris Club debt, proposing an additional 1050% reduction of its Paris Club debt, proposing an additional 10% % reduction in exchange for a deposit of equivalent funds in the reduction in exchange for a deposit of equivalent funds in the EcoFundEcoFund. .

With support of 5 creditors (France, Italy, Sweden, Switzerland With support of 5 creditors (France, Italy, Sweden, Switzerland and the and the United States), ~ US$545 million will be invested in environmentUnited States), ~ US$545 million will be invested in environmental al projects until 2010 projects until 2010

Successful Triangular Debt Swap ProgramSuccessful Triangular Debt Swap Program 1989 to 1995: UNICEF completed 21 transactions, generating US $51989 to 1995: UNICEF completed 21 transactions, generating US $52.9 2.9

million for infancy and maternity development programs.million for infancy and maternity development programs.

Developing countries reduced their external debt by US $199.3 miDeveloping countries reduced their external debt by US $199.3 million.llion.


Case Study: Triangular debt swap conducted by UNICEF Case Study: Triangular debt swap conducted by UNICEF with debt owed by Senegal to Argentina (1993).with debt owed by Senegal to Argentina (1993).

UNICEFDutch Committee

Government ofArgentina

Government ofSenegal

Steps:1. Dutch UNICEF Committee purchased US$24m face value of debt from the government of Argentina (a creditor of Senegal) for US$6 million (25% of the purchase price).2. UNICEF transferred the US$24 debt to the Government of Senegal for cancellation. 3. The Government of Senegal paid the equivalent of US $11 million (46% of the redemption price) in francs over three years of support of UNICEF-Senegal projects for women and children.

STEP 1

STEP 2

STEP 3

UNICEF-SenegalDevelopment

Projects

8. What are the potential benefits 8. What are the potential benefits of debt for education swaps?of debt for education swaps?

8. What are the potential benefits?8. What are the potential benefits?

Potential benefits for the debtor countryPotential benefits for the debtor country1. Increased Funding for Education Programs1. Increased Funding for Education Programs

Most clear benefit: resources which generated for the Most clear benefit: resources which generated for the education sector. education sector.

2. Debt Reduction2. Debt Reduction

Positively impact overall debt situation of developing country.Positively impact overall debt situation of developing country.

3. Increased civil society participation 3. Increased civil society participation

Swaps can also create positive publicity for important Swaps can also create positive publicity for important education initiatives. education initiatives.

8. What are the potential benefits?8. What are the potential benefits?

Potential benefits for the creditorPotential benefits for the creditor1. Support for development projects1. Support for development projects

Swaps can assure that funds made available are used for activitiSwaps can assure that funds made available are used for activities es important to the creditor, such as investment in education. important to the creditor, such as investment in education.

2. Increase in Official Development Assistance (ODA)2. Increase in Official Development Assistance (ODA)

Increase ODA spending without cost to the national budget. Increase ODA spending without cost to the national budget.

Developed world is far below their promised ODA objective of Developed world is far below their promised ODA objective of 0.7% of GDP. 0.7% of GDP.

Total aid to basic education is only 2.6% of global ODA.Total aid to basic education is only 2.6% of global ODA.

3. Recovery of a portion of debt 3. Recovery of a portion of debt

Portion of the debt can be recovered through the sale at a Portion of the debt can be recovered through the sale at a discount of the face value.discount of the face value.

9. What is needed to develop an 9. What is needed to develop an international consensus?international consensus?

9. What is needed to develop a consensus?9. What is needed to develop a consensus?

Actions Recommended at the National LevelActions Recommended at the National Level Form part of debtor countryForm part of debtor country’’s national education strategy, s national education strategy,

particularly for its most vulnerable population particularly for its most vulnerable population

Incorporate debt swaps as part of overall debt management Incorporate debt swaps as part of overall debt management strategies. strategies.

Counterpart fund is likely to generate greater benefits and Counterpart fund is likely to generate greater benefits and awareness if its activities are focused on a set of critical issawareness if its activities are focused on a set of critical issues: i.e. ues: i.e. Universal Primary EducationUniversal Primary Education

Models in which both governments have representatives on the Models in which both governments have representatives on the governing committee, with local NGO presence, have the greatest governing committee, with local NGO presence, have the greatest chances for success.chances for success.

10. What is the role of the Working 10. What is the role of the Working Group?Group?

10. 10. What is the role of the Working Group?What is the role of the Working Group?Proposed Terms of Reference for the Working Group:Proposed Terms of Reference for the Working Group:

1.1. Gather and reflect on experiences Gather and reflect on experiences of debt swaps in various fields and of debt swaps in various fields and different countries, in order to guide the development of different countries, in order to guide the development of recommendations for education;recommendations for education;

2.2. Consult expert opinion;Consult expert opinion;

3.3. Formulate potential scenarios for debt swaps in the education doFormulate potential scenarios for debt swaps in the education domain;main;

4.4. Consider different modalities for sharing information and experiConsider different modalities for sharing information and experience with ence with countries interested or involved in debt swaps for educationcountries interested or involved in debt swaps for education, such as the , such as the preparation of preparation of policy guidance briefs;policy guidance briefs;

5.5. Submit to the DirectorSubmit to the Director--General, in time for him to report to the 34th General, in time for him to report to the 34th session of UNESCOsession of UNESCO’’s General Conference on the outcomes of the s General Conference on the outcomes of the Working GroupWorking Group’’s deliberations, a report on its work, with s deliberations, a report on its work, with recommendations on the value and usefulness of debt swaps for recommendations on the value and usefulness of debt swaps for education and on best practices conducive to the successful education and on best practices conducive to the successful implementation of debt swaps for education.implementation of debt swaps for education.

10. 10. What is the role of the Working Group?What is the role of the Working Group?

Further Proposals for the Working Group:Further Proposals for the Working Group:

Lobby creditor and debtor governmentsLobby creditor and debtor governments

Collaborate with multilateral organizations Collaborate with multilateral organizations

Promote new mechanismsPromote new mechanisms

Involve more NGOS to participateInvolve more NGOS to participate

Monitor and participate on bilateral and multilateral Monitor and participate on bilateral and multilateral committees to ensure transparency and accountabilitycommittees to ensure transparency and accountability

Create a data base and website for sharing experiencesCreate a data base and website for sharing experiences

Next meeting: Buenos Aires, May/June 2007Next meeting: Buenos Aires, May/June 2007

Thank YouThank You

debt for education swaps - unesco · working group for debt for education swaps daniel filmus ......

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