The C2Ds, a Funding Instrument under the APSFs
As a supplement to the Debt Relief Initiative for Highly-Indebted Poor Countries (HIPC), which is aimed at making debt “bearable”, France and other members of the G7, set out, in January 2000, to cancel all of the bilateral debt contracted by the said countries under public development aid.
That additional relief brought by the French is carried out via a donation-based refinancing mechanism, managed under a so-called “Debt Removal and Development” Contract (C2D): the country continues to honour its debts with French lenders, but the State undertakes, in exchange, to make a donation in an equivalent amount to the country, in order to finance anti-poverty programmes as described in the APSF and selected in conjunction with the Partner State. This original mechanism is based on an approach that lays emphasis on ownership by the relevant country and partnership, by combining civil society participation with effective, foreseeable aid.
Seven sectors, which contribute the most directly to achieving the Millennium Development Goals, have been given priority: education; water and sanitation; health and the fight against AIDS; agriculture and food safety; infrastructure development; environmental protection; and manufacturing sector development.
The C2Ds are aimed at helping beneficiary countries fund their anti-poverty strategy. In order to further improve ownership of aid, they are implemented, first and foremost, as sector-specific aid or general budgetary aid, in support of the APSFs, when conditions so allow (reliable management of public expenditure, relevant and credible sector-specific strategies, etc). This implies a certain split with the practice of project-based aid. In addition, when such new aid procedures are used, the C2Ds make it possible for France to take part in multi-donor funding mechanisms, thereby fostering harmonised, coordinated aid.
France opted for this mechanism in order to institute dialogue with the authorities from beneficiary countries around their poverty-reduction policy and to report on the use of debt relief, both to local civil society and the French Parliament.
Lastly, the C2D instrument enables greater foreseeability in aid streams, something highly appreciated by our partners, as they are thus able to commit to programmes on a long-term basis. Donation-based refinancing does have a longer outlook as the debt repayments are often spread over some twenty years. It then comes in the form of several successive C2Ds, each concluded for three- or five-year periods.