Proposal for a Council Decision on the position to be adopted by the Community within the ACP-EC Council of Ministers regarding a decision on the use of the reserve of the long-term development envelope of the ninth European Development Fund for debt alleviation
Date: 2003-04-25
Institutions: European Commission
Subjects: ACP countries, European Development Fund, cooperation policy, debt reduction, developing countries

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 25.04.2003
COM(2003) 212 final

Proposal for a

COUNCIL DECISION

on the position to be adopted by the Community within the ACP-EC Council of
Ministers regarding a decision on the use of the reserve of the long-term development
envelope of the ninth European Development Fund for debt alleviation

 (presented by the Commission)

EXPLANATORY MEMORANDUM

1.

INTRODUCTION

The  European  Community  plays  an  active  role  in  the  preparation  and  implementation  of
major initiatives in favour of developing countries, such as debt reduction for the  benefit of
Highly  Indebted  Poor  Countries  (HIPC),  the  Global  Fund  to  Fight  HIV/Aids,  Malaria  and
Tuberculosis (GFATM or  "Global Fund"), reproductive health,  Johannesburg  initiatives  etc.
Such  initiatives  in  favour  of  ACP  countries  make  substantial  contributions  to  poverty
reduction, the main objective of both the ACP-EC Partnership Agreement signed in Cotonou
on 23 June 2000 and the Community Development Policy.

The  EDF  being  the  major  source  of  funding  of  Community  Aid  to  ACP  countries,  (any
further) contributions to these initiatives for the benefit of ACP countries should come from
the EDF. The amount earmarked for intra-ACP co-operation under the 9th EDF (€300 million)
is  too  limited  to  cover  all  initiatives.  The  9th  EDF  reserves  should  therefore  be  mobilised.
Using the 9th EDF reserves for new initiatives will also help to speed up the implementation
of  the  funds  earmarked  for  ACP  Countries  under  past  Lomé  Conventions  and  the  ACP-EC
Partnership  Agreement  signed  in  Cotonou  on  23  June  2000.  An  overall  review  of  the
implementation  of  the  9th  EDF  is  planned  in  2004.  The  extent  to  which  commitments  and
disbursements have been made will form the basis for this evaluation. Using 9th EDF reserves
for  new 
the
implementation of aid in favour of ACP countries.

initiatives  and  with  quick  disbursement  mechanisms  will  accelerate 

In accordance with the Cotonou Agreement and the Internal Agreement between EU Member
States,  the  Commission  has  proposed  to  the  EDF  Committee  to  continue  support  from  the
Community to new initiatives such as health, education, peace and security, and Johannesburg
initiatives by transferring €204 million from the 9th EDF reserve for regional co-operation to
the  allocation  for  intra-ACP  co-operation.  This  proposal  will  lead  to  full  absorption  of  the
envelope  for  regional  co-operation.  (The  total  amount  available  for  regional  co-operation  is
€1.204 million1, of which €700 million are allocated to regional indicative programmes  and
€300  million  have  already  been  allocated  to  intra-ACP  co-operation).  Under  these
circumstances,  the  ACP-EC  Council  of  Ministers  can  take  appropriate  measures  in
accordance with paragraph 8 of the 9th EDF Financial Protocol, which can be  applied when
funds provided for in any of the instruments of the Cotonou Agreement are exhausted.

Against  this  background,  the  Commission  proposes  that  the  Council  adopt  the  enclosed
decision  on  the  transfer  of  €335  million  from  the  reserve  of  the  9th  EDF  long-term
development  envelope  to  the  envelope  for  regional  co-operation,  to  be  used  for  debt
alleviation.

2.

DEBT RELIEF

The Highly Indebted Poor Countries (HIPC) Initiative was launched in 1996 and enhanced in
1999  at  the  G7/G8  Summit  in  Cologne  with  the  objective  of  bringing  the  debt  burden  of

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The  9th  EDF  Financial  Protocol  foresees  an  amount  of  €1.300  million  for  regional  co-operation.
However, taking into consideration that €1 billion of the total amount of the 9th EDF (€13,5 billion) is
conditioned  by  a  performance  review  in  2004,  the  real  amount  available  for  regional  co-operation  is
only €1.204 million.

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highly  indebted  poor  countries  down  to  a  sustainable  level.  An  HIPC  Trust  Fund  was
established in November 1996 to provide financial support for multilateral credit institutions
participating  in  the  HIPC  initiative  and  help  them  achieve  their  agreed  share  of  debt  relief.
The Trust Fund can provide  financial support for payment of the debt, coverage of the debt
service, plus purchase and subsequent forgiveness of the debt. The Trust Fund is administered
by the International Development Association (IDA).

Out of  a  total of  42 countries that are  eligible  for  the  initiative,  20  countries  have  currently
reached  decision  point  (i.e.  are  eligible  for  interim  debt  relief)  and  6  have  reached  their
completion  point  (i.e.  starting  full  debt  relief).  For  these  26  countries  the  total  debt  relief,
including under traditional mechanisms and additional bilateral debt forgiveness, will amount
to  some  USD  40  billion  in  Net  Present  Value  terms,  resulting  in  a  reduction  of  about  two
thirds of their overall debt stock, thus enabling these countries to significantly increase their
poverty reduction spending.
By Decisions Nos 1/1999 of 8 December 1999,2 2/2001 of 20 December 20013 and 3/2002 of
23 December 2002, the ACP-EC Council of Ministers allocated resources to debt alleviation
mechanisms  in  favour  of  highly  indebted  poor  ACP  countries  for  a  total  amount  of  €1  185
million. The EU-Council had furthermore earmarked an amount of €40 million for the same
purpose  by  Decision  No  98/453  of  6  July  19984  from  interest  accrued  on  EDF  treasury
accounts.5 These resources were intended to (i) cover the overall financing of the initiative in
favour  of  Highly  Indebted  Poor  Countries  (HIPC)  to  the  amount  of  €680  million  (donor
contribution6)  and  (ii)  meet  the  outstanding  debt  and  debt-servicing  obligations  to  the
Community of ACP  countries  eligible  under  the  HIPC  initiative  for  a  total  amount  of  €545
million (creditor contribution).

The latest estimate7 of the total HIPC Trust Fund requirement is USD 3.42 billion, including
the costs of potential additional debt relief needed after completion point caused by external
shocks (so-called topping-up). However, total pledges to the HIPC Trust Fund amount only to
USD 2.62 billion, and therefore the Trust Fund shows a funding gap of USD 800 million for
the  34  currently  costed  countries.  The  amount  proposed  for  a  new  EC  contribution  to  the
Trust  Fund  is  €200  million,  which  has  been  calculated  on  the  basis  of  fair  burden  sharing
between all donors.

The  current  estimated  cost  for  Community  participation  in  the  HIPC  as  a  creditor  is  about
€680  million,  including  topping-up  costs.  Given  the  current  level  of  pledges  from  the
Community, i.e. €545 million, it is proposed that €135 million be used to finance the gap for
outstanding debt and debt-servicing obligations.

The total amount of the proposed new contribution to HIPC for ACP countries thus stands at
€335  million.  Taking  into  consideration  that  the  envelope  for  regional  co-operation  is  fully
exhausted  by  existing  allocations  and  by  the  new  intra-ACP  allocation  of  €204  million,  the
new  contribution  for  HIPC  should  be  taken  from  the  9th  EDF  reserve  for  long-term
development. A decision by the ACP-EC Council of Ministers is required for this purpose.

2

3

4

5

6

7

OJ L 103, 28.4.2000, p. 73.
OJ L 56, 27.2.2002, p. 19.
OJ L 198, 15.7.1998, p. 40
The Community gave a further contribution of €54 million to the HIPC initiative from the Budget, in
favour of Latin American and Asian countries.
Together  with  the  contribution  from  the  Budget,  the  Community  has  so  far  participated  in  the  HIPC
Trust Fund as a donor for a total amount of €734 million.
“HIPC initiative – Status of implementation” Joint report prepared by the staffs of the IMF and World
Bank, September 23, 2002

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For  all  these  reasons,  the  Commission  proposes  that  the  Council  should  adopt  the  attached
decision on the use of the reserve of the 9th EDF envelope for long term development.

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Proposal for a

COUNCIL DECISION

on the position to be adopted by the Community within the ACP-EC Council of
Ministers regarding a decision on the use of the reserve of the long-term development
envelope of the ninth European Development Fund for debt alleviation

THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article
310 in conjunction with the second subparagraph of Article 300(2) thereof,

Having regard to the proposal from the Commission,

Whereas:

(1)

(2)

Article 15 of the ACP-EC Partnership Agreement signed in Cotonou on 23 June 2000
establishes  an  ACP-EC  Council  of  Ministers  with  powers  to  take  decisions  in
accordance  with  the  Agreement  and  Paragraph  8  of  Annex  I  allows  the  Council  of
Ministers to take appropriate measures if funds provided for in any of the instruments
of the Agreement are exhausted.

Funds  from  the  9th  EDF  envelope  for  regional  co-operation  and  integration  are
exhausted. The Community's position within the ACP-EC Council of Ministers should
therefore  be  established  with  a  view  to  its  adopting  a  decision  on  the  Community's
participation in debt alleviation in favour of highly indebted poor ACP countries from
the reserve of the long-term development envelope of the ninth EDF.

HAS DECIDED AS FOLLOWS:

Article 1

The Community shall take the following position within the ACP-EC Council of Ministers on
the use of the reserve  of  the  9th  EDF  long-term  development  envelope  for  debt  alleviation,
based on the attached draft decision of the ACP-EC Council of Ministers.

Minor changes to the draft decision may be agreed without the need for a further decision by
the Council.

Article 2

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Done at Brussels,

For the Council
The President

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ANNEX

Draft

DECISION OF THE ACP-EC COUNCIL OF MINISTERS

on the use of the reserve of the long-term development envelope of the ninth European
Development Fund for debt alleviation

THE ACP-EC COUNCIL OF MINISTERS,

Having  regard  to  the  ACP-EC  Partnership  Agreement  signed  in  Cotonou  on  23  June  2000,
and in particular Paragraph 8 of its Annex I,

Whereas:

(1)

(2)

By  Decisions  Nos  1/1999  of  8  December  1999,  2/2001  of  20  December  2001  and
3/2002 of 23 December 2002, the ACP-EC Council of Ministers allocated resources to
debt  alleviation  mechanisms  in  favour  of  highly  indebted  poor  ACP  countries  for  a
total  amount  of  €1  185  million.  From  this  amount,  €545  million  was  earmarked  for
alleviation of  outstanding debt  and  debt  servicing  obligations  to  the  Community  and
€680  million  as  a  contribution  to  the  HIPC  Trust  Fund  administered  by  the
International Development Association.

To  ensure  continued  support  for  debt  alleviation  mechanisms  in  favour  of  highly
indebted poor ACP countries, it is appropriate to allocate supplementary resources to
intra-ACP co-operation for a total amount of €335 million. However, the envelope for
regional co-operation and integration as defined in Article 3(b) of annex I to the ACP-
EC  Partnership  Agreement  is  exhausted.  The  necessary  resources  will  therefore  be
transferred  from  unallocated  resources  of  the  9th  EDF  long  term  development
envelope.

HAS DECIDED AS FOLLOWS:

Article 1 – Debt relief

An  amount  of  €335  million  shall  be  transferred  from  unallocated  resources  of  the  9th  EDF
long-term development envelope to the intra-ACP allocation under the envelope for regional
co-operation  and  integration,  and  used  for  debt  relief  in  favour  of  ACP  countries  that  are
eligible  under  the  initiative  in  favour  of  Highly  Indebted  Poor  Countries  (HIPC),  in
accordance with Article 66 of the ACP-EC Partnership Agreement. This amount can be used
for the following purposes:

–  meeting  the  outstanding  debt  and  debt  servicing  obligations  to  the  Community  of  ACP

countries that are eligible under the HIPC initiative (€135 million);

–  contributing  to  the  financing  of  the  HIPC  Trust  Fund  to  the  benefit  of  ACP  Countries

(€200 million).

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Article 2

In  accordance  with  Article  13(2)  of  Annex  IV  to  the  ACP-EC  Partnership  Agreement,  the
ACP  Council  of  Ministers  requests  the  Commission  to  finance  support  for  debt  relief  for  a
total amount of €335 million, as defined in Article 1 of the present decision.

Done at Brussels,

For the ACP-EC Council of Ministers
The President

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