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Documents about the HIPC Debt Initiative
World Bank HIPC Information
Strengthening the Link Between Debt Relief and
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IMF Executive Board Reviews HIPC Initiative Modifications, August 13, 1999
Modifications to the HIPC Initiative, July 23,
Proposals to Strengthen the Initiative for the Heavily Indebted Poor Countries (HIPCs)|
September 23, 1999
The World Bank and IMF jointly launched a comprehensive two-stage review of the HIPC Initiative in early 1999. Drawing on the results of extensive public consultations and discussions in the World Bank and IMF Boards, this review process has culminated in proposals to strengthen the HIPC Initiative which are to be considered during the 1999 World Bank-IMF Annual Meetings in late September.
Enhancing the Framework of the Initiative: Faster, Deeper, and
Broader Debt Relief
Enhancing the Framework of the Initiative: Faster, Deeper, and Broader Debt Relief
Phase I of the HIPC Initiative review requested views on a range of issues relating to the design of the Initiative including the definition of debt sustainability, eligibility criteria, the fiscal criteria and thresholds, time-frames, and links to macroeconomic and structural policy reforms. In April 1999, the Interim and Development Committees endorsed a mandate to strengthen the Initiative in order to provide deeper debt relief, while reinforcing the incentives to adopt and implement economic and social reforms, and providing a clear exit from unsustainable debt burdens. The HIPC Initiative was also on the agenda of the G-7 summit in Cologne, where heads of governments supported proposals to provide faster, deeper, and broader debt relief for the poorest countries that demonstrate a commitment to reform and poverty alleviation. Proposals to modify the HIPC Initiative were endorsed by the IMF and World Bank Boards in August 1999 subject to agreement on the needed funding, and will be considered by the Development and Interim Committees at the IMF-World Bank Annual Meetings in September 1999. These proposals would strengthen the Initiative in the following ways.
Deeper debt relief through:
Faster debt relief through:
These changes would imply:
Debt Relief and Poverty Reduction
The second phase of the HIPC review solicited views on how to strengthen the link between debt relief and poverty reduction in the HIPC Initiative. Based on these consultations, proposals were endorsed by Bank and Fund Boards in early September and will also be considered at the IMF-World Bank Annual Meetings in late September.
The Bank and Fund Boards concluded that:
In parallel, the IMF is also reforming its main vehicle for support to all low-income countries--the Enhanced Structural Adjustment Facility (ESAF)--to make sustainable poverty reduction a central objective. The cornerstone of the new approach, which is to be discussed at the Interim Committee meeting in late September, is to base future lending to low-income countries on the comprehensive nationally owned and outcome-oriented poverty reduction strategy elaborated in the country's PRSP. As they become available, PRSPs will provide a new framework for closer collaboration between the World Bank and IMF. Clearer articulation and costing of social and anti-poverty measures will allow fuller integration of these objectives and policies in the design of the economic program. Furthermore, future ESAFs will include even greater emphasis on transparency and good governance.
Costs of the HIPC Initiative
The total costs for all creditors of implementing the HIPC Initiative before the proposed modifications was estimated at US$12.5 billion in 1998 NPV terms. Providing deeper and broader debt relief more rapidly under the strengthened Initiative would more than double this cost to over US$27 billion. Within this total, the shares for multilateral and bilateral creditors are estimated to remain roughly equal. The IMF's contribution would be about $2_ billion, to be financed by additional bilateral contributions and off-market gold sales.
Debt Relief in Perspective
The proposals described here represent a significant strengthening of the HIPC Initiative. Nevertheless, the Initiative is not, and cannot be, a panacea for all the problems of heavily indebted poor countries. Even if all the external debts of these countries were forgiven, most will still depend on significant levels of concessional external assistance for many years. Similarly, the effectiveness of the enhanced HIPC Initiative depends on the broader policy framework related to poverty reduction and sustainable development such as the adoption of appropriate policies in HIPCs, the support of such policies by aid flows, better access for HIPCs to industrial country markets, and restraints on non-concessional lending for non-productive purposes.