Report, 02.10.2006

Annex to press Release No 118/06 02.10.06

Cancellation of debts incurred as a result of the Norwegian Ship Export Campaign (1976-80)

Norway’s claims vis-à-vis developing countries amount to approximately NOK 4,4 billion.

Approximately NOK 2.9 billion of the debt owed by developing countries to Norway (including accrued interest on arrears) is related to the Norwegian Ship Export Campaign (1976-80), under which Norway exported 156 vessels and ship’s equipment totaling NOK 3.7 billion to 21 countries.

The campaign was financed through the Norwegian Guarantee Institute for Export Credits’ (GIEK) old general guarantee scheme and its old special scheme for developing countries. A great many of these projects proved to be economically unsustainable, so that government guarantees were triggered and the Norwegian Government became creditor.

In 1988-89, the Brundtland Government conducted an evaluation of the Ship Export Campaign, in which the campaign was criticized for inadequate needs analyses and risk assessments. The main conclusion was that this kind of campaign should not be repeated.

A little more than NOK 1.1 billion of this debt has been cancelled previously, primarily in connection with Norway’s follow-up to the debt relief initiative for the poorest countries (Heavily Indebted Poor Countries, HIPC).

It is now generally agreed that the Ship Export Campaign was a development policy failure. As creditor, Norway shares part of the responsibility for the resulting debts. By canceling these claims, Norway takes the responsibility for allowing Ecuador, Egypt, Jamaica, Peru and Sierra Leone no longer to be obliged to service the remainder of these debts.

As of 30 June 2006, the remaining ship export debt is shared by:

Myanmar

NOK 1 579 million

Sierra Leone

NOK 60 million

Sudan

NOK 772 million

Peru

NOK 48 million

Ecuador

NOK 225 million

Jamaica

NOK 19 million

Egypt

NOK 168 million

In the case of Myanmar, Sudan, Ecuador and Sierra Leone, all the debt owed to Norway is ship export debt (99 per cent in the case of Sudan). For Egypt and Jamaica the ship export debt represents 75 per cent of the total debt to Norway. For Peru the ship export debt represents 18 per cent of the total bilateral debt.

In 2007, the Government plans to cancel the remaining debt incurred by Egypt, Ecuador, Peru, Jamaica and Sierra Leone as a result of the Ship Export Campaign by means of a unilateral declaration, without stipulating any conditions.

In the case of Myanmar and Sudan, the ship export debt will not be cancelled until these countries become eligible for multilateral debt relief operations.

Sierra Leone is expected to complete its HIPC treatment around the turn of the year 2006/2007, and in any case all of its outstanding debt to Norway will thereby be cancelled. Therefore, Sierra Leone’s debt will not be cancelled until the country has completed its HIPC treatment.

As of 30 June 2006, the total outstanding debt owed to Norway by Ecuador, Egypt, Jamaica, Peru and Sierra Leone was NOK 520 million (NOK 460 million if Sierra Leone is excluded). Cancellation of these debts will result in a reduction in future payments from the countries concerned and a corresponding reduction in income over the government budget. Based on current exchange rates and interest rate levels, it is calculated that the government’s revenue losses will amount to NOK 577 million over the rest of the ship export debt repayment period, which expires in 2021.

In keeping with the financing facility of the Plan of Action on Debt Relief for Development the Government proposes to cancel the ship export debt without allocating any funds over the development assistance budget and without reporting the amounts forgiven to the OECD/DAC as official development assistance (ODA).

Nor will the cancellation of the ship export debt be covered by the financing facility (which allows for the cancellation of NOK 3 173 million without budgetary allocation), except in the case of Sierra Leone.

The unilateral cancellation of the ship export debt will be implemented outside the cooperative framework of the Paris Club of creditor countries. In this particular case the Government finds that there is good reason for Norway to take an independent stand.

The unilateral forgiveness of debt in 2007 will be a one-off debt relief policy measure. All future debt forgiveness will be effected through multilaterally coordinated debt relief operations.

Royal Norwegian Ministry of Foreign Affairs
2 October 2006