Press Release: IMF and IDA Support US$1.3 Billion Debt Service Relief Eligibility for Bolivia Under Enhanced HIPC
February 8, 2000
The International Monetary Fund (IMF) and the International Development Association (IDA) have agreed to support Bolivia's eligibility for a debt reduction package under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative; this assistance is expected to be delivered beginning in 2000, when Bolivia reaches its floating completion point. This will occur when Bolivia has adopted a poverty reduction strategy-in a participatory process with civil society-which has been broadly endorsed by the Bank and Fund Boards and after Bolivia's other creditors have confirmed their participation in debt relief under the enhanced HIPC Initiative. Resources made available from this debt relief will help finance social expenditures, contributing to Bolivian efforts to reduce poverty.
BolivianVice President, Jorge Quiroga indicated "I am delighted to hear that the international community has again recognized Bolivia's efforts and progress in poverty reduction." He also added that "President Banzer's administration will call for a National Dialogue again with the participation of the new Municipal Governments in order to engage the entire nation in the common goal of reducing poverty. This is the best way to respond to the trust the international community has placed on us and to put to best use the resources from the enhanced HIPC Initiative."
In net present value terms, total relief under the enhanced HIPC Initiative from all of Bolivia's creditors would amount to US$854 million, equivalent to around 30 percent of total debt outstanding at the end of 1998. This is expected to translate into debt service relief over time of close to US$1.3 billion. This amount is in addition to the approximately US$760 million ($US448 million in net present value terms) of relief provided one year ago under the original HIPC Initiative and additional debt relief provided on ODA loans. In all, the net present value of Bolivia's external public debt is estimated to be reduced by 35 percent under the (original and enhanced) HIPC Initiative, which is on top of 17 percent debt reduction already provided under traditional debt relief mechanisms.
Under the enhanced HIPC Initiative, IDA's assistance to Bolivia will amount to US$253 million (US$140 million in net present value). This relief would be delivered over 15 years starting in 2001 and will cover 50 percent of debt service falling due to IDA. IMF assistance of US$74 million (US$55 million in net present value terms) will cover around one quarter of debt service due to the Fund over an eight-year period, also starting in 2001. In the interim, Bolivia continues to benefit from the front-loaded relief provided under the original HIPC framework The Inter-American Development Bank (IDB), Bolivia's largest creditor, supports the objectives of the enhanced HIPC Initiative, but is still to decide on modalities, sources, and timing of financing. Further efforts will need to be made by the international community to secure all the financing needed under the enhanced HIPC Initiative for Bolivia, and that any delays in providing enhanced HIPC Initiative assistance could undermine its progress in the reduction of poverty.
HIPC debt relief under the enhanced framework could translate into lower debt service payments on the order of 1.2 percent of GDP during the first few years, helping to finance additional social spending. Indeed, if all of the resources made available by the enhanced framework were aimed at social expenditures, such expenditures could rise by about 7 percent; and when combined with relief from the original HIPC framework, by about 11 percent.
The Bolivian authorities will receive the enhanced HIPC debt relief to support a poverty reduction strategy to be developed in the context of a participatory process involving broad representation of Bolivian civil society. For this purpose, the Bolivian authorities are presently organizing a National Dialogue expected to take place in the first half of 2000. The Poverty Reduction Strategy Paper (PRSP) resulting from the National Dialogue will contain Bolivia's anti-poverty strategy and a comprehensive set of indicators that will measure the impact of specified policies and will help to monitor advances in the fight against poverty. The overall approach set out in the PRSP would also be considered by the Executive Directors of the IDA and IMF for broad endorsement as a context for future assistance to Bolivia.
Bolivia is the first country in Latin America to be declared eligible for debt relief under the enhanced HIPC Initiative. Over the past decade, Bolivia has experienced a dramatic improvement in its macroeconomic performance. Inflation fell from hyperinflationary rates in 1985 to just 3.1 percent in 1999; official international reserves and foreign direct investment have increased significantly; and the external debt burden--while still high--has eased significantly. Although annual growth has increased from virtual stagnation in the previous decade to an average of about 4 percent in real terms during the 1990s, it remains below potential, and about 70 percent of Bolivia's population still lives in poverty.
Following initiatives by various creditor governments and six months of review and participatory consultations led by the World Bank and IMF, the HIPC Initiative was enhanced to yield deeper, broader and faster debt relief to potentially eligible countries. It is projected that the enhanced HIPC framework will provide debt relief totaling approximately $28 billion in NPV terms.
For more information on HIPC, visit:http://www.imf.org/external/np/exr/facts/hipc.htm