Political Background
The region, now known as the Democratic Republic (DR) of Congo, was declared the private property of the Belgian king in the 19th century and became a formal Belgian colony only in 1908. The Congolese population was subjected to extremely harsh working conditions, and military force was often used to suppress anti-colonial opposition and to protect the flourishing copper mining industry in the Katanga province.
Belgian Congo achieved independence in 1960 and was renamed the Federal Republic of Congo. Joseph Kasavubu was the country’s first President, and Patrice Lumumba was the first Prime Minister. The country’s post-independence history was marked by political instability, violence and human rights abuses. A civil war broke out just a few days after independence, triggered by secessionist activities in the province of Katanga. The war ended in 1963 and was followed by several military coups. Finally, army commander Joseph Desire Mobutu seized power in 1965 and ruled the country as a dictator for the next 32 years. Under the doctrine of “African authenticity”, Mobutu changed the country’s name to Zaire and his own to Mobutu Sese Seko. However, his nationalisation did not go much further than that, and he continued to offer his services to the USA.
The country’s economic situation during the 1970s and 1980s was disastrous, although it had many natural resources and was the world’s largest cobalt exporter at the end of the 1970s. At the beginning of the 1980s, the country’s economy was under direct IMF control, and, at one point, the IMF’s representative in Kinshasa personally supervised the country’s accounts.
In 1990, Mobutu announced the end of the one-party system and promised to hold free elections. A rapid process of political organization began, which frightened the authorities and made Mobutu reverse his decisions. This, in turn, triggered demonstrations, which were violently oppressed. The country’s economic situation worsened: In 1992, banks were forced to close because of a lack of funds, and inflation reached 16,500 per cent. Economic and political uncertainty continued throughout 1994, with the arrival of approximately one million refugees from Rwanda creating great tension in eastern Zaire.
Mobutu’s downfall began in 1996 when he planned to banish the Zairian Tutsis, who had lived for centuries in eastern Zaire. Rwanda’s government and other rebel groups came to their help. In May 1997, Mobutu fled Zaire, opposition forces entered Kinshasa, and Laurent Kabila, who had led one of the rebel groups, declared himself President. The new government changed the name of Zaire to the Democratic Republic of Congo and announced a series of economic recovery measures.
In 1998, Congolese rebel forces, led by ethnic Tutsis in eastern Congo and backed by Rwanda and Uganda, began attacking Kabila’s forces and gained control over large portions of the county. However, Angola, Namibia and Zimbabwe came to Kabila’s help and pushed the rebels back. Overall, an estimated 200,000 people, mostly civilians, were killed during this conflict, and about 2 million were indirect victims, dying of starvation or diseases, which would have been treated in the absence of conflict.
In 1999, the Congolese government, the major rebel groups and the foreign countries involved in the conflict signed a cease-fire agreement. It called for a withdrawal of foreign troops, the disarmament and repatriation of foreign rebel groups based in the DR Congo and an inter-Congolese dialogue to agree on a new political dispensation. Implementation of the agreement stalled until January 2001, when, after the assassination of his father, Joseph Kabila became President of the DR Congo. Since then, major progress has been made.
Economic Background
The Democratic Republic of the Congo is rich in natural resources and thus endowed with vast potential wealth. However, the country has been unable to use this potential so far because of economic mismanagement, widespread corruption and political instability. With a GDP per capita of approximately $600, the DR Congo is one of the poorest countries in the world. The economy has declined drastically since the mid-1980s due to inflation and violent internal conflicts. In 2000, the country’s GDP fell by an estimated 15 per cent. More than 80 per cent of the Congolese population is affected by poverty.
In the UNDP’s Human Development Index of 2002, the Democratic Republic of the Congo is ranked 155 out of 173. Life expectancy at birth is 51 years and the adult literacy rate is 61 percent. The HIV/AIDS prevalence rate among adults was estimated at 5% in 1999.
DR Congo and the HIPC process
DR Congo has accumulated a massive stock of debt over the past few years, mainly because the country has not serviced its obligations for almost a decade. As of 2001, total external debt was estimated at $12,880m in nominal terms, of which more than $10m was in arrears. In NPV terms, the stock of Congo’s external debt was US$7,267 million in the same year after assuming the full use of traditional debt relief mechanisms. Paris Club bilateral creditors account for 55 per cent of this debt, multilateral creditors for about 38 per cent and Non-Paris Club bilateral creditors, commercial creditors, and holders of short-term debt for the remaining debt outstanding.
Despite DR Congo’s high debt burden, she has not so far received any relief under the HIPC initiative because of the prolonged instability in the country. However, in May 2002, the IMF and World Bank prepared a preliminary paper addressing whether the DR Congo is eligible for relief under the enhanced HIPC initiative. According to this report, the ratio of the country’s debt in net present value (NPV) terms to its exports stood at 730% at the end of 2001, almost five times the HIPC sustainability threshold of 150%. Bank and Fund staff also expressed satisfaction over the government’s recent economic reforms, so they assumed the country could reach a decision point in January 2003. The completion point might be reached in 2006.
According to the IMF’s and World Bank’s projections, debt relief amounting to $5,773m will be necessary to bring the DR Congo’s debt to sustainable levels, i.e. to a debt to exports ratio of less than 150% by 2006 and beyond. As the assumptions underlying this analysis seem rather optimistic (e.g. GDP is expected to grow by an average of 6.4 per cent over 2002-2021), it is quite likely that DR Congo will need even further relief to reach sustainable debt levels. The envisaged HIPC assistance is expected to reduce Congo’s annual debt service by an average of $300m from 2003 to 2005, $344m from 2006 to 2010 and $400m from 2011 to 2021.
In June 2002, the DR Congo could make an important step towards a decision point, as the Executive Board of the IMF approved an arrangement for the country under the Poverty Reduction and Growth Facility (PRGF) worth about $750m. Typically, satisfactory performance under a PRGF programme is a necessary condition if a country is to receive HIPC debt relief.
This is odd as PRGF assistance is given as loans, not grants. Thus, countries must take on new debt to be eligible for debt relief. In the case of the DR Congo, this is especially problematic as it is a post-conflict country and is in a dire economic situation. In the words of the IMF and the World Bank, the DR Congo “…is emerging from 35 years of ruination. Prolonged economic mismanagement and a devastating war have resulted in hyperinflation, a soaring budget deficit, an overvalued exchange rate, and widespread poverty.” Considering this evaluation, it is not understandable why the DR Congo has to take on new debt and is not given aid in the form of grants.
In September 2002, the Paris Club and the Government of the DR Congo agreed to a restructuring of the country’s public external debt, which was said to lead to the immediate cancellation by Paris Club creditors of about $4,640m. The measures are expected to reduce debt service due to Paris Club creditors from around $9,090m to around $280m between 2002 and 2005. Paris Club creditors agreed to top up the reduction rate to 90% as soon as the DR Congo has reached its decision point.
Footnotes
[1] See: “The World Guide 2001/2002”, Instituto del Tercer Mundo; http://www.cia.gov/
[2] see: http://www.cia.gov/, http://www.undp.org/, http://www.worldbank.org/
[3] Most of the information in this chapter is based on the “DR Congo: Enhanced HIPC Initiative—Preliminary Document” (IMF and World Bank, May 2002).
[4] See IMF Press Release No. 02/27, June 13, 2002
[5] DR Congo Preliminary Document, 2002, p.6
[6] see: http://www.clubdeparis.org/