Press Release: IMF and World Bank Support US$1.2 billion in additional debt service relief for Bolivia Under Enhanced HIPC
June 8, 2001
The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) and agreed today that Bolivia has met the conditions for its completion point under the enhanced framework of the Heavily Indebted Poor Countries (HIPC) Initiative. Bolivia becomes the second country to reach this point (after Uganda).
Debt-service relief under the enhanced HIPC Initiative from all of Bolivia's creditors will amount to US$1.2 billion (US$854 million in NPV terms). Including the assistance provided under the original Initiative, total debt-service relief under the HIPC Initiative will amount to about US$2 billion.
As a result of HIPC assistance and bilateral debt relief already committed, Bolivia's total external debt is reduced by one-half; with possible additional bilateral forgiveness, cancellation could reach 58 percent. The NPV of debt-to-export ratio is expected to remain well below the target ceiling of 150 percent throughout the period 2000-2020. Debt-service obligations are also significantly reduced at the completion point, creating room for additional public expenditures on poverty reduction. Annual debt service payments are lowered substantially, by some US$120 million per year over the next ten years. Taking into account additional voluntary bilateral relief, debt service as a percentage of exports of goods and services is reduced in 2001 from 23 percent to 16 percent; and as a percentage of government revenue from almost 18 percent to under 13 percent. Resources made available by debt relief provided under the HIPC Initiative will be allocated to key antipoverty programs, which are outlined in the Bolivian Poverty Reduction Strategy Paper (PRSP).
Bolivia's eligibility for debt relief under the enhanced HIPC Initiative is a recognition by the international community of its continued progress in implementing sound macroeconomic and structural policies, and of the overall quality of its PRSP.
The World Bank's enhanced HIPC Initiative debt-service relief amounts to US$139.6 million in NPV terms, which will be provided between July 1, 2001 and September 30, 2014 by covering 50 percent each year of the debt service falling due to IDA on the debt disbursed and outstanding as of end-2000, after full delivery of original HIPC assistance. Together with the assistance under the original framework, the World Bank will deliver debt-service relief to Bolivia amounting to US$287 million. Under the enhanced HIPC Initiative, the IMF will provide US$55.3 million in NPV terms, which is expected to yield additional debt-service relief of US$63 million1 between mid-2001 and early 2007. Total debt-service relief to Bolivia under the HIPC Initiative, including relief under the original framework, is expected to be US$91 million.
Track record and poverty reduction
Upon reaching its decision point under the enhanced framework of the HIPC Initiative in February 2000, three conditions were established for Bolivia to reach its completion point and receive irrevocable debt relief under the enhanced framework from the World Bank and IMF; (i) continued implementation of strong macroeconomic and structural policies; (ii) establishment of a fully defined PRSP; and (iii) confirmation of participation in the enhanced HIPC framework from Bolivia's other creditors.
- Macroeconomic stability and structural reform: Despite a weaker than expected recovery in the economy since its enhanced decision point, Bolivia met virtually all of the quantitative financial benchmarks and performance criteria in its program with the IMF. Important structural measures that were achieved include institutional reform of the customs and internal revenue agencies; a new tax procedures code to strengthen tax administration, which is nearing final legislative approval; and the launching of a new financial management information system to increase transparency and accountability in public expenditure administration.
- Poverty reduction strategy paper: The Bolivian PRSP, which was published in March 2001, reflects the key conclusions of the National Dialogue on poverty reduction that was carried out in mid 2000 at the local, regional and national levels. In addition to reaching consensus on priority policy areas, such as health, education, land tenure, and productive infrastructure support, there was important agreement on a direct role for civil society in the monitoring of the expenditures of HIPC resources. Another key element of Bolivia's anti-poverty strategy is the focus on decentralization and broad access to new resources. HIPC resources will be distributed to municipalities based on their population and level of poverty. In this way a more progressive pattern of public expenditure will be achieved.
- Creditor participation: Assurances of participation have been obtained from all principal multilateral and Paris Club creditors, which together account for 96 percent of the assistance to be provided under the enhanced HIPC framework.
The HIPC Initiative was launched by the IMF and the World Bank in 1996 as the first comprehensive effort to eliminate unsustainable debt in the world's poorest, most heavily indebted countries. In October 1999, the international community agreed to make the Initiative broader, deeper and faster by increasing the number of eligible countries, raising the amount of debt relief each eligible country will receive, and speeding up its delivery. The enhanced HIPC Initiative aims at reducing the net present value (NPV) of debt at the decision point to a maximum of 150 percent of exports or 250 percent of government revenue, and will be provided on top of traditional debt relief mechanisms (Paris Club debt rescheduling on Naples terms, involving 67 percent debt reduction in NPV terms and at least comparable action by other bilateral creditors).
Eligible countries will qualify for debt relief in two stages. In the first stage, the debtor country will need to demonstrate the capacity to use prudently the assistance granted by establishing a satisfactory track record, normally of three years, under IMF- and IDA-supported programs. In the second stage, after reaching the decision point under the Initiative, the country will implement a full-fledged poverty reduction strategy, which has been prepared with broad participation of civil society, and an agreed set of measures aimed at enhancing economic growth. During this stage, the IMF and IDA grant interim relief, provided that the country stays on track with its IMF- and IDA-supported program. In addition, Paris Club creditors, and possibly others, are expected to grant debt relief on highly concessional terms. At the end of the second stage, when the floating completion point has been reached, the IMF and IDA will provide the remainder of the committed debt relief, while Paris Club creditors will enter into a highly concessional stock-of-debt operation with the country involved. Other multilateral and bilateral creditors will need to contribute to the debt relief on comparable terms.
Some three-dozen HIPCs are expected to qualify for assistance under the enhanced HIPC Initiative, the great majority of which are sub-Saharan African countries. Debt relief packages are now in place for 23 countries under the enhanced HIPC Initiative framework: Benin, Bolivia, Burkina Faso, Cameroon, Chad, The Gambia, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tome & Príncipe, Senegal, Tanzania, Uganda and Zambia, for total committed assistance estimated at more than US$34 billion, representing an average NPV stock-of-debt reduction of nearly 48 percent on top of traditional debt relief mechanisms.
1 At the completion point, SDR 41.14 million, together with interest calculated at the average rate of return per annum on investments of the resources held by or for the benefit of the HIPC Trust, shall be made available to Bolivia in the form of a grant to an account for the benefit of Bolivia established and administered by the IMF. The proceeds shall be used to meet Bolivia's debt service on its existing debt to the IMF as they fall due. The U.S. dollar figure is derived using the SDR exchange rate as of June 7, 2001.