OVERVIEW OF GERMAN DEBT EXCHANGES

Germany was one of the first countries to use debt exchanges to promote debt relief and development efforts, having done so since 1993. By the end of 2008, Germany had signed debt exchanges with 19 countries to a face value of €1.36 billion. In these agreements €737 million of bilateral debt was waived.

The German Federal Ministry for Economic Co-operation and Development (BMZ) selects countries eligible for debt exchanges by looking at the urgency of the need for debt relief, the political conditions in the debtor nation, previous co-operation in debt management and the current educational initiatives and poverty-reduction measures of the debtor nation. The BMZ's budget is allocated through German budgetary regulations, and the German government has to approve the debt to be exchanged. Going forward from 2008 onwards, €150 million of bilateral debt has been earmarked for debt exchanges each year.

The BMZ states that ‘funds released as a result of debt relief must be used to combat poverty and promote sustainable development’. Sectors eligible for investment include environmental and resource protection, education and general poverty reduction. German debt-for-development exchanges involve a substantial element of debt forgiveness, with typically only 20% to 50% of the debt cancelled being required to be invested in local currency in development projects.

Germany has cancelled US$7.1 billion face value of debt under the extended Highly Indebted Poor Countries (HIPC) Initiative. Given this extensive debt cancellation, debt exchanges are no longer required with HIPCs.