Contents:
Progress Report
Chairman's Summing-Up Meeting of the Committee of the Whole (World Bank)
Concluding Remarks by the Acting Chairman (IMF)

Progress Report by the Managing Director of the IMF and the President of the World Bank

April 22, 1999

There is a welcome and widespread public interest in debt relief for the world's poorest countries in general and in the HIPC Initiative in particular. A wide array of proposals to change the Initiative has been forthcoming from member countries of the IMF and IDA, NGOs, religious groups, and other international organizations. These proposals range from outright cancellation of most of the poorest countries’ debt, to much lower targets under the Initiative linked more strongly to poverty reduction, to more modest changes in the current framework of the Initiative. In this light, Executive Directors at the IDA and IMF met to discuss options for changing the HIPC Initiative on April 15 and April 16, respectively. Summings-up of both discussions are attached to this report. Executive Directors had before them, inter alia: (i) a joint staff paper reporting the options for change; (ii) an updated costing of the current framework, and some alternatives; and (iii) a compendium of the many written comments received during an extensive consultation process.

Underlying the proposals for change are differing views on the objectives of debt relief, the contribution of policy reform, and cost constraints. In order to guide our further deliberations, we presented to the Boards a joint management statement offering a set of principles for changing the HIPC Initiative and describing a possible general approach that reflects these principles. The principles for change which are set out below received broad endorsement by the Executive Directors in both institutions, and would provide a basis to narrow the options before us. This progress report is based on the joint management statement, together with a brief section on that costing analysis.

Principles for change

Our aim is to provide HIPC Initiative assistance in a way that reinforces the other tools that the international community offers—including policy-based and project lending, and donor assistance—to achieve our ultimate objective, namely sustainable development, with a focus on poverty reduction. To this end, we set forth the following principles for change:

• Debt relief should be provided in a way that reinforces the wider tools of the international community to promote sustainable development and poverty reduction.
• Debt relief should be provided in a way that strengthens the incentives for debtor countries to adopt strong programs of adjustment and reform.
• Enhanced debt relief should focus particularly on our poorer members for whom excessive debt can be a particularly severe obstacle to development.
• Debt relief under the Initiative should provide a clear exit from an unsustainable debt burden—with an appropriate cushion against exogenous shocks—and remove the debt overhang. This implies, inter alia, that debt relief when given is provided irrevocably.
• Enhanced debt relief—such as through lower targets—should be provided to all members, including those—generally the stronger performers—that have already reached decision and completion points under the Initiative provided that they qualify under any revised thresholds.
• Changes to the Initiative should simplify its implementation.
• Proposals for enhanced debt relief should be accompanied by proposals for how the major contributions of the key multilateral creditors concerned—including the Bank, IMF, and the AfDB—should be financed and should involve close consultation with all other affected creditors.

General approach

Applying these principles, we would suggest the following general approach:

• Lower key targets and thresholds to give a greater degree of confidence that robust debt sustainability was being achieved. Two primary reasons have been put forward to lower debt sustainability targets: (1) the fiscal criteria are too restrictive; and (2) a more robust cushion for debt sustainability is needed. These concerns could be addressed by a reduction in the fiscal targets (and thresholds) and/or through a reduction in the target debt-to-export ratios. To reduce complexity, a single net present value (NPV) debt-to-export target may be preferable to the current range. A lowering of targets could increase both the amounts of assistance and the number of countries eligible for assistance under the Initiative, thereby providing a stronger incentive for sustained policy implementation. A lowering of targets would imply a higher cost: for example, a lower NPV debt-to-export target of 150 percent would cost about an additional US$7 billion in 1998 NPV terms; a lowering of the fiscal target to 250 percent with lower thresholds would cost about an additional US$3 billion; these two changes together would cost an additional US$8 billion. Assuming retroactive application to countries which have already reached the decision and completion points, the costs would be, respectively, US$9 billion, US$4 billion, and US$11 billion.
• Earlier provision of debt relief. The objective under the Initiative has been to provide relief as early as possible, compatible with maximizing the development impact of the assistance. In the country cases considered to date, the setting of the interim period has been done flexibly—and we would wish to continue to use that flexibility on a case-by-case basis. A blanket reduction in the interim period without additional assurance regarding policy performance might not provide sufficient time or incentive to secure the key reforms needed to move forward to sustainable development. Early delivery of assistance by multilaterals during the second stage could be reconsidered.
• Tighter links between debt relief and poverty reduction and social policies. We share the widespread interest in ensuring that the resources released though debt relief contribute to strengthening programs to improve social and economic services for the poor. Debt relief can provide both an incentive and a relatively sustained resource to back poverty reduction and social development programs. We believe that there is scope to tighten these linkages within the Initiative. A focus of the second stage of the 1999 HIPC review process now underway is to improve the mechanism to achieve this.
• Enhanced debt relief and financing from bilateral creditors. We particularly welcome the proposals of some major creditors to:

• Provide additional relief on commercial claims above the Paris Club’s current 80 percent limit for NPV reduction on eligible debt, in those cases where this is required under proportional burden-sharing to reach targets agreed under the Initiative.
• Provide all HIPCs with a 67 percent NPV reduction in eligible debt, thus going beyond the 50 percent NPV reduction which has been received by a few countries.
• Provide more relief on a concerted basis on ODA debts of HIPCs—up to full cancellation—by bilateral creditors. It is to be welcomed that number of creditors have already fully cancelled their ODA claims.
• Organize efforts to ensure that new financing for HIPCs is in the form of grants or highly concessional loans, and within appropriate export credit guidelines.
• A commitment by all members to seek early financing solutions for multilateral creditors. Current costs of the HIPC Initiative and additional costs of any enhancement must be financed. Financing solutions should be consistent with maintaining the strength and financial integrity of the multilateral institutions. An urgent solution to the financing needs of the IMF and multilateral development banks is needed.

Wider actions

This general approach for strengthening the HIPC Initiative, also needs to be reinforced by wider actions by our better-off members. First, larger ODA flows should be provided to HIPCs and these flows concentrated on those countries implementing strong policies. Most HIPCs will remain heavily dependent on aid inflows even after the delivery of assistance under the Initiative. Second, trade liberalization needs to be reinvigorated so that the export products of HIPCs—which are largely raw materials and agricultural products—have unrestrained access to industrial country markets. We urge redoubled efforts on both the aid and trade fronts: without such efforts, the HIPC Initiative cannot by itself achieve sustained poverty reduction.

Costing analysis

The total costs of the HIPC Initiative—under the current framework—are estimated at US$12.5 billion in 1998 NPV terms, up by 29 percent in comparison with the estimates made in August 1998.¹ Most of the cost increase is due to lower export projections which reflect the decline in primary commodity prices. On this basis, 29 of the 41 countries considered in the costing analysis could be eligible for assistance under the HIPC Initiative assuming they sustain (and, in some cases, begin) adjustment and reform programs. The costs of the HIPC Initiative under a number of alternative frameworks which would provide more debt relief were also estimated, and one such costing is reported above.

Consistent with the increase in aggregate costs under the current framework, the estimated costs for the all creditor groups have risen, including for the Bretton Woods institutions, the African Development Bank, and the Inter-American Development Bank. Costs for the World Bank have risen to US$2.4 billion in 1998 NPV terms, up from US$2.0 in the August 1998 analysis. Similarly for the IMF, costs are now estimated at US$1.2 billion in 1998 NPV terms (up from US$0.8 billion).² Thus, the financing of such increases in costs for the Bank and Fund, and multilateral creditors generally, as well as of any enhancement of the Initiative, will require a major effort to generate the additional necessary resources.

Conclusion

Overall, there are clearly difficult trade-offs involved in the various options. The principles for change set out above and the general approach reflect these principles and try to strike an appropriate balance by providing more generous debt relief in a framework that reinforces the broader efforts by the international community to achieve poverty reduction. Therefore, views on the following three questions are sought:

1. Mandate for change: Do Ministers endorse a mandate for strengthening the HIPC Initiative to provide a more robust exit from unsustainable debt burdens and a closer link to poverty reduction?

2. Principles: Do Ministers endorse the principles for change set out above? Do they have comments on the general approach which seeks to apply these principles?

3. Financing: Do Ministers agree that the enhancement of the Initiative needs to proceed in parallel with agreement on additional financing for multilateral creditors? In this regard, do they have any specific suggestions on financing?

Chairman's Summing-Up Meeting of the Committee of the Whole on Heavily Indebted Poor Countries (HIPC) Initiative: Perspectives on the Current Framework and Options for Change (World Bank)

April 15, 1999

The Committee of the Whole met on April 15, 1999 to consider the paper entitled "Heavily Indebted Poor Countries (HIPC) Initiative: Perspectives on the Current Framework and Options for Change" - prepared jointly by the staffs of IDA and the IMF. The paper was supplemented by a note on costings as well as a joint statement by the Managements of the Bank and Fund on guiding principles that could be used to assess the various proposals for changing the current framework. We have also circulated a compendium of written comments received by the staff as part of the review of the HIPC Initiative.

Directors welcomed the paper, which provided a comprehensive overview and assessment of the various proposals that have been made to address the debt problems of heavily indebted poor countries (HIPCs). Directors complemented the staff on the broad and open consultative process with civil society that had been undertaken over the past two months, and considered this to be a model of such efforts. They strongly encouraged the staff to continue this process for the second phase of the review. Directors agreed that the review was focussing on the main issues that had arisen regarding the Initiative, based on its implementation to date.

Directors also welcomed the statement of guiding principles provided by the Managements, and agreed that these principles provided a sound basis for considering specific changes to the framework. In particular, Directors stressed that debt relief needed to be approached within the broader context of supporting development and reducing poverty, including higher aid and open trade policies. They also underscored that it was important to retain the basic elements that had guided the HIPC Initiative, including an overall framework for multilaterally agreed joint action, strong emphasis on performance monitored under Bank and Fund programs, and relief tailored to country requirements. There was also a consensus to make the Initiative more effective, simple and transparent. In addition, the need for fair and equitable treatment among countries benefiting from the Initiative remained an important consideration, and the benefit of changes to the Initiative should, therefore, be applied to countries that have already completed the HIPC cycle.

Regarding costs and financing, there was a widespread recognition that changes to the Initiative could be costly, based on the estimates that were provided by the staff. In addition, the uncertainty regarding costs was underscored by the increases in the estimated cost of the existing framework, largely because of changes in primary commodity prices and discount rates. Although the financing of the Initiative had been done pragmatically and on a pay as you go basis, Directors cautioned that any changes to the Initiative would need to be done with confidence that the additional costs could be met. In this context, particularly given the limits on the availability of IBRD net income, the options and tradeoffs involved for the Bank to meet additional costs would have to be carefully considered. More generally, there is a need for a broad effort to find financing solutions for multilateral institutions as their ability to meet additional costs from their own resources is limited. Directors also stressed the importance of equitable and fair burden sharing and maintaining the financial integrity of multilateral institutions. In this context, a number of Directors raised the need for adequate contributions to the HIPC Trust Fund.

With these principles in mind, Directors broadly agreed that the timing was right for the Initiative to be strengthened. There was general support for the consideration of changes to enable debt relief under the Initiative to be deeper, to cover more countries, and to be provided earlier. Such changes would be aimed at providing greater assurance that the Initiative would meet its objective of securing robust debt sustainability for HIPCs and enhancing the poverty impact of debt relief. Directors noted that the goals of debt sustainability and sustainable development should be seen as complementary and mutually reinforcing, and that changes to the Initiative should be made with the ultimate objective of poverty reduction and human development. In this context, great importance was placed on the second phase of the review, which would examine explicitly the linkages of debt relief to programs for sustainable development and poverty reduction.

With respect to the main issues raised in the paper, the broad sense of the discussion was as follows:

• With respect to the depth and breadth of relief, there was a broad support for considering deeper debt relief under the Initiative in order to provide a greater safety cushion for debt sustainability. Directors asked staff to explore further how this deeper debt relief could be achieved. Many directors supported lowering the NPV debt-to-export targets. There was also interest in providing for lower targets for countries facing exceptional circumstances, such as post-conflict or post-catastrophe situations, using the flexibility of the Initiative. The idea of introducing a lower target range for countries with the lowest incomes was raised, though there was also concern about introducing additional complexity into the Initiative. A number of Directors preferred a single target in the aim of simplicity, while other Directors preferred a target range in order to retain the flexibility of the original HIPC framework. There was considerable support for relaxing the thresholds under the fiscal/openness window, and a number of Directors thought that a lower debt/revenue target or target range should also be considered, perhaps taking into account the interaction with the threshold tests. A few Directors also expressed interest in the idea of setting the targets as of a fixed date, such as at the decision point, to provide both a greater cushion for debt sustainability and greater certainty in relief as well as financial neutrality in setting the completion point. Deeper additional relief on bilateral claims made after the completion point was also suggested as another way of providing an additional cushion for debt sustainability. Directors also noted that a lowering of the debt sustainability targets would also have the effect of broadening the eligibility for assistance. A few Directors suggested that an explicit broadening of the eligibility criteria to include additional vulnerable low-income countries also be considered.
• Regarding the timing of debt relief, there was a general sense that greater use could be made of the flexibility provided for under the Initiative in assessing the track record required to meet the decision point. In this context, some Directors preferred an explicit shortening of the track record. At the same time a number of Directors stressed the importance of making use of the interim period between the decision and completion points in establishing the conditions for the best use of the resources to be released by the permanent debt reduction provided at the completion point. There was also considerable support for the idea of providing relief from multilateral institutions on debt service during the interim period. This was seen by many as a way of responding both to an interest in ensuring that debt relief had a clear cash flow benefit for HIPCs, as well as providing needed relief earlier, without compromising the performance requirements for permanent debt reduction.
• Regarding performance monitoring, Directors underscored the importance of performance as a condition for ensuring that resources released by debt relief are used to strengthen development efforts that will benefit the poor. Regarding key social and structural reforms, a number of Directors expressed interest in the floating tranche approach for aligning the completion point with policy achievements, provided there was a sound macroeconomic framework in place, though there remained a number of questions of how this would be applied in practice.
• Directors warmly welcomed the proposals for enhanced debt relief from bilateral creditors that had been made by a number of major creditors. In particular, Directors noted that proposals to provide additional relief above the Paris Club's current 80 percent limit on eligible debt could significantly ease the implementation of the HIPC Initiative in those cases where this was necessary to reach debt sustainability targets on the basis of proportional burdensharing. Proposals to provide more relief on a concerted basis on ODA debts of HIPCs - up to full cancellation - were also warmly welcomed, especially if they were additional to other relief provided under the HIPC framework. There was also considerable support for more strongly coordinated efforts to ensure that new financing for HIPCs was in the form of grants or on highly concessional terms, to avoid the reappearance of debt problems. Some Directors also called for greater efforts to coordinate between the Paris Club and non-Paris Club bilateral creditors.

Finally, Directors agreed that the main paper and costing note be made available to the public. They also agreed that the paper with the supplements, as well as the results of their discussions should be forwarded to the Development Committee with a management cover note seeking the endorsement of a mandate for change and guidance on the direction of change and its financing. The Management was asked to continue with the HIPC Review, as planned, and to develop further the proposals for change in light of the guidance from these discussions.

Concluding Remarks by the Acting Chairman (IMF)
The HIPC Initiative—Perspectives on the Current Framework and Options for Change; and Status of Financing for the Current ESAF and the ESAF-HIPC Initiatives
Executive Board Meeting 99/43

April 16, 1999

Executive Directors welcomed this discussion of the Heavily Indebted Poor Countries (HIPC) Initiative. They noted the widespread public interest in greater debt relief in general, and in enhancing the HIPC Initiative in particular. Directors endorsed the broad and open consultative process that has been undertaken. They encouraged the staff to continue this process for the second phase of the review. Directors welcomed the helpful comments and proposals received from NGOs, religious groups, international organizations, and multilateral development banks, which had been conveyed to the Boards as part of the consultation process.

The discussion today has been wide-ranging, reflecting the many and diverse proposals that have been put forward. There are nevertheless important areas that have attracted broad support that can help focus the debate as we move forward.

Executive Directors welcomed the joint statement on the HIPC Initiative by the President of the World Bank and the Managing Director, and expressed general support for the principles for change of the HIPC Initiative set out in that statement.

• First: Directors agreed that debt relief should be provided in a way that reinforces the wider tools of the international community—including policy-based and project lending, and donor assistance—with the wider aims of promoting sustainable development and poverty reduction.
• Second: Directors agreed that debt relief should be provided in a way that strengthens the incentives for debtor countries to adopt strong programs of adjustment and reform.
• Third: Directors generally agreed that enhanced debt relief should focus particularly on our poorer members for whom excessive debt can be a particularly severe obstacle to development.
• Fourth: Most Directors consider that debt relief under the Initiative should provide a clear exit from an unsustainable debt burden—with an appropriate cushion against exogenous shocks—and remove debt overhangs. Consistent with this, most also agreed that debt relief, when given, should be provided irrevocably. A few Directors saw merit in broadening the objective of debt relief beyond that necessary for debt sustainability, and providing debt relief as a key financing mechanism in poverty reduction efforts. Some Directors favored linking such additional debt relief to performance tests after delivery.
• Fifth: Directors generally recognized that enhanced debt relief, such as through lower targets, should be provided to all members. This should include those—generally the stronger performers—that have already reached decision and completion points under the Initiative, provided that they qualify under a revised threshold.
• Sixth: Directors supported the proposition that changes to the Initiative should in general simplify its implementation and make it more transparent.
• Seventh: All Directors supported the principle that proposals for enhanced debt relief should be accompanied by proposals for how the major contributions of the key multilateral creditors concerned—including the Bank, Fund, and African Development Bank—should be financed. Directors noted that the estimated costs of the existing framework have risen, and that financing for this framework is not yet fully secured. Many Directors conditioned their support for change on a simultaneous identification of the necessary financing from multilateral creditors. The importance of appropriate burden sharing of costs among creditors was emphasized by a number of Directors. A number of Directors stressed that any proposals should be based on net additional financing, to ensure that any increases in allocations for the HIPC Initiative do not crowd out existing aid flows. I will return to the financing of the Fund's contribution later.

In the context of these broad principles, and keeping in mind the financing issues, I will now try to summarize the views of Directors in the four main areas in which many proposals have been made: the depth of relief; the breadth of relief; the timing of relief; and the related policy conditionality.

Many Directors expressed a willingness to consider changes that could provide for deeper debt relief, in order to provide a greater safety cushion for debt sustainability, although a few considered that a case for changing the targets had not been fully established and that the HIPC Initiative already provides sufficient flexibility to accommodate exceptional needs. It is now clearly too early to try to make concrete proposals for changing the targets in light of the uncertainties as to how the additional debt relief would be financed. However, many Directors seem to be in favor of reducing both the export and fiscal targets, along the lines proposed by some creditors in recent months. Of those favoring reduced targets, a number of Directors also suggested reducing the thresholds to broaden eligibility for the fiscal criteria. A number of Directors considered that the fiscal revenue-to-GDP threshold might be reduced to reflect the difficulty faced by some of the least developed countries in collecting fiscal revenues, but that, for moral hazard reasons, it should not be eliminated. A few Directors expressed interest in a debt service-to-revenue ratio as a useful indicator. On the export-to-GDP threshold, some favored a reduction. To reduce complexity of implementation, a number of Directors also appeared to favor using a single net present value of debt-to-exports target instead of the current range, although several Directors preferred to maintain the flexibility of a case-by-case approach.

Several Directors expressed interest in the example presented in the joint management statement, with the lower NPV of debt-to-export target of 150 percent, and a fiscal target of 250 percent with reduced thresholds. Several Directors advanced the idea of focussing such lower targets on those HIPCs with the deepest poverty, and requested further elaboration of the idea of using a per capita income cutoff for any new, lower targets. Some Directors suggested that lower targets might be related to exceptional country performance. Several Directors considered that HIPC Initiative debt relief should be available in cases of natural disaster, and asked the staff to flesh out proposals for such cases—and for post-conflict/arrears cases.

Directors noted that broader debtor country participation within the HIPC Initiative would be desirable, both to ensure that debt relief reached all of those countries needing it to achieve sustainability, and also to extend the incentives for countries to sustain adjustment and reform policies. It was considered that a lowering of targets would serve to broaden the eligibility for assistance.

Turning now to the question of timing, Directors agreed that a performance period was necessary, with the objective of maximizing the development impact of the assistance. However, a number of Directors supported an explicit and general shortening of the track record. These Directors indicated that they considered that a three-year performance period would give sufficient assurance of a strong policy environment, especially since it is likely that many HIPCs would continue under ESAF- and Bank-supported adjustment and reform programs after the completion point.

On the other hand, many Directors favored little or no general shortening of the track record period to reach the HIPC Initiative completion point, stressing the need to provide sufficient time and incentives for the countries to undertake the required structural reforms. These Directors pointed out that the three-year track record requirement between the decision and the completion points had in practice been interpreted flexibly—with a shortening in six of the seven early cases—and this flexibility should be continued. They emphasized that the exceptional nature of HIPC assistance should be justified by exceptional reforms. It was also noted that substantial external financing was available to countries that had begun Fund- and Bank-supported adjustment programs, and that these countries would also be eligible for concessional flow reschedulings from bilateral creditors.

In the context of maintaining a three-year second stage between the decision and the completion point, a number of Directors also supported consideration of interim assistance by the Fund, Bank, and other multilateral creditors as a means to advance relief ahead of the completion point. Given the interest expressed here, the staff will make in due course concrete proposals on interim assistance from the Fund, including an analysis of the cash flow impact of advancing assistance.

Some Directors expressed interest in further work examining the idea of linking delivery of the HIPC Initiative assistance to a pre-defined set of policy measures—the "floating tranche" idea. These Directors agreed that a minimum period of time would still be necessary to assure that prudent macroeconomic underpinnings are in place. While recognizing the positive incentives of such an approach, other Directors raised practical concerns about its implementation, including the difficulty of identifying a small set of key measures which could determine the timing of the delivery of assistance under the Initiative, or the danger of overloading the reform agenda.

On the links between debt relief and poverty reduction and social policies, Directors considered that the resources released through debt relief should contribute to improving social and economic services for the poor. Debt relief can provide both an incentive and a resource to support poverty reduction and social development programs. Directors welcomed the intention to consider ways to tighten the linkages between debt relief within the Initiative and poverty reduction and social policies in the context of the second part of the 1999 HIPC Initiative consultation and review process. They emphasized that such work would need to rely heavily on the expertise of the World Bank.

Many Directors expressed support for the proposals made by major creditor governments to increase debt relief outside of the HIPC Initiative framework. A number of Directors stressed that strengthening the HIPC Initiative needs to be reinforced by wider actions by industrial country members. Many urged that larger official development assistance flows be provided to HIPCs, and that these flows be concentrated on those countries implementing strong policies. Directors recognized that most HIPCs will remain heavily dependent on aid inflows even after the delivery of assistance under the Initiative. In addition, many Directors supported a reinvigoration of trade liberalization so that export products of HIPCs, which are largely raw materials and agricultural products, have free access to industrial country markets.

In considering the financing issue, it is essential to keep clearly in mind the costs of debt relief and in particular the delays experienced in financing the Fund's participation in the HIPC Initiative and the continuation of the ESAF.

Executive Directors welcomed the progress made in securing additional loan resources for the current ESAF. They noted that the positive indications from three potential lenders still amounted to less than two-thirds of the amount sought, and agreed that it was important to secure new loans as a matter of great urgency so as to ensure that the Fund will be in a position to continue to support the economic adjustment efforts of our poorest members without any interruption.

As regards the financing of the ESAF-HIPC Trust, Directors welcomed the update and specific information on individual bilateral contributions. Directors noted that although positive indications of the amount of bilateral contributions had increased since the last update, potential contributions still were well below the estimated financing needs of SDR 2.9 billion, on an as needed basis, based on the revised baseline cost estimated for the HIPC Initiative. Directors regretted that a substantial amount of these contributions remained conditional, and noted the significant losses in terms of foregone income resulting from delays in securing the financing needed for the ESAF-HIPC Trust. Several Directors also indicated the need for appropriate burden-sharing, including larger contributions from the developed countries. They thought that the concept of appropriate burden sharing should be discussed and clarified in due course, in an appropriate forum. Several Directors were in favor of the timely publication of information on the progress in financing of the HIPC Initiative on an aggregate basis.

Directors took note of the significant increase in costs associated with the possible modifications to the HIPC Initiative under the different scenarios presented by the staff. They agreed that decisions on the modification of the HIPC Initiative, with the associated implications for costs to the Fund, would have to be taken with clarity about arrangements that effectively secure the necessary financing for the ESAF-HIPC initiatives. Directors looked forward to the forthcoming paper on possible modalities for gold sales. In addition, the discussion of the Fund's income position and precautionary balances would provide an opportunity for considering some of the issues relating to refunds of the SCA-2 balances as well as possible further transfers from the Reserve Account to the ESAF-HIPC Trust, in lieu of reimbursing the GRA for the cost of administrating the ESAF Trust.

This is not the moment for firm decisions on ESAF-HIPC financing in light of the state of discussions on the HIPC Initiative. But we will need to be ready to take the necessary decisions, including full coverage of any increase in costs arising from modifications to the HIPC Initiative, as soon as this is clarified and hopefully before the Annual Meetings.

Directors are aware that the paper on the HIPC Initiative for this discussion, together with the costing supplement, with appropriate modifications, will be posted on the external web sites of the IMF and the World Bank.

This summing up will be forwarded to the Interim Committee and the Development Committee, capped by a short report by managements highlighting their joint buff statement. The staffs of the Fund and the Bank will provide further analysis of a range of proposals, costing, and discussion of financing options in the light of the Committees' views.