Bolivia and the IMF
The Federal Democratic Republic of Ethiopia and the IMF
Guinea-Bissau and the IMF
Honduras and the IMF
Mexico and the IMF
Myanmar and the IMF
Republic of Mozambique and the IMF
Nigeria and the IMF
Nicaragua and the IMF
Vietnam and the IMF
Gold in the IMF -- A Factsheet
Heavily Indebted Poor Countries -- A Factsheet
Free Email Notification
INTERNATIONAL MONETARY FUND and WORLD BANK
April 23, 1999
MR. GAETA: Why don't we try to get started? Thank you very much for coming out and braving the obstacle course which is Washington today. We're very happy to see you out early on a Friday morning to discuss an obviously very important and timely and newsy issue.
There has been a great amount of activity lately, not just by donor governments but also by NGOs, by churches, and by citizens all around the world who are interested in the process of the HIPC Initiative and debt relief for the poorest countries more generally.
I'm sure you'll have specific questions about some of the recent activities with the Boards of both the IMF and the World Bank looking at some of the submissions from the donor governments and these NGOs that took place last week.
And why don't we get right to it? We have Mr. Anthony Boote on my far right and Mr. Axel Van Trotsenburg from the World Bank. Axel, do you want to start and lay it out a little bit?
MR. VAN TROTSENBURG: Thank you, Tony. Good morning.
I thought to introduce the topic very quickly, to recall where we are, where is the HIPC with regard to the review process. What we have been doing is to split this review process into two phases. One is mainly focused on the framework of HIPC, i.e., the debt sustainability issues, timing issues, performance issues, and the second phase, which we will start soon now, is to look more into the link between debt service relief and to social sector development.
With regard to the first phase, we started actually with some new things at the Bank and at the Fund. We did website consultations as well as in-country consultations in Europe, Africa, North America, and in Latin America. And I must say that the response has been tremendous. We have here, if you are interested, a two-volume compendium with contributions, and we got responses from not only the NGO community on a very short notice but also from religious organizations, the governmental organizations, to individuals. And these contributions have been then summarized in a Board paper, which has been now also put on the website and supplemented by a costing note.
I would say that what we are seeing is that with the many proposals coming forward from the civil society, but also from governments--five out of the G-7 have now made proposals--there is a clear sense for changing HIPC and strengthening HIPC.
Last week we had Board discussions at the World Bank, and the report was very well received, and particularly there was a sense that we should strengthen it, i.e., provide deeper debt relief, and it should have broader coverage. And there was also a sense by quite a few Directors of earlier debt relief.
Clearly, this sense of change has then to be translated into improvements into the framework, and here we will consult not only again with our Boards but also with governments, and not to forget the other creditors and donors, as well as what we need to address is the costing and financing issues.
The supplement I just mentioned on the costing, which has also been put on the website, you will see that proposals can range from like $3 to $30 billion, anywhere where you want to change some parameters of this framework. I would say the majority of proposals seem to suggest a doubling of the cost.
And so on that basis, we should certainly look forward to a good Development Committee meeting next week as well as to further consultations leading up to the G-7 summit in Cologne, and hopefully in the next couple of months we will have a strengthened HIPC before us.
MR. BOOTE: Good morning. I'm also happy to welcome you here to the bowels of the new IMF building. I'm happy that you're also here for this topic, which is of great importance to us because, as you know, the Fund spends a lot of its time discussing what we call--what is called now the international financial architecture, but as I think the Managing Director emphasized, I'm sure, to some of you a couple of days ago, it's very important to us that that be inclusive, and by that we mean that we do as much as possible as we can to bring our poorer members into participation in the global economic community. And we regard the HIPC Initiative as a very important part of that wider process.
Axel has summarized for you quite well, I think, where we are so far on HIPC. Maybe I can add a couple of points from that wider context I started off with.
First of all, the costings paper--you have both of the papers that went to both of our Boards. The costing supplement makes it clear that the costs of the existing framework of the initiative have risen substantially. They've risen from about--by about 30 percent from when we did the exercise in the middle of last year, now to around about $19 billion for all of the countries. That's without any changes. And, in a sense, that's due primarily to global economic developments.
What do I mean by that? I mean specifically the dominant effect there is the decline in commodity prices, and it's the impact of that commodity price decline on the exports of HIPCs is shown up in them needed more assistance calculated in relationship to exports. So, in that sense, if you like, in a sort of general sense, the HIPC Initiative is providing a degree--some would argue small but, nevertheless, a degree of a safety net in relationship to export developments for HIPC countries.
In terms of how we go forward from here, clearly there are reports from our Boards to the Interim and Development Committees, and we expect those to be published after the committee meetings, and also, obviously, their reactions to those reports.
Axel has stressed that we have an ongoing consultation process on the links between poverty, social development, and debt relief, and how can we provide debt relief in the most effective way.
Our objective here is to have decisions on strengthening, enhancing the HIPC Initiative by the Annual Meetings, guided, of course, by orientations that I'm sure will come out of the Cologne summit.
What are we trying to do overall here? I think Axel has referred to that. But I want to stress that our overall objective is to provide debt relief in a way that provides an exit from unsustainable debt burdens as well as a cushion against exogenous shocks. But our fundamental aim is to do this in a way that reinforces the tools the international community uses for what is really the basic objective here, which is sustainable development in poor countries, with a particular focus on poverty reduction.
What are the principal areas of discussion? Lower targets I think is certainly going to be a focus of the discussions; possible provision of earlier debt relief by multilateral institutions; bringing forward of debt relief to the second stage; how we strengthen the link with the social sectors, and, in particular, improving the effectiveness of debt relief in the context of poverty reduction. That's the consultation area we're particularly focusing on from now. And, finally, as I think President Wolfensohn stressed yesterday, how do we finance all of this? It's rather important that we do something that actually offers genuine help to HIPCs rather than schemes that are not financed.
MR. GAETA: We can start with questions, but let me first say it occurs to me I forgot to identify the titles of our speakers, and here titles are important.
Axel is the Manager of the Bank's HIPC Implementation Unit, and Tony is the Division Chief of the Official Financing Operations Division, Policy Development and Review Department.
I'm going to ask everybody to identify yourselves and your affiliation, and then there's a red button, I believe, next to where you're sitting to begin questioning.
QUESTION: Mr. Matthias, VWD, German Economic Service. I would like to know something about the very different proposals concerning financing and gold reserves, because I saw figures, 2 billion, 10 billion--I saw a lot of figures.
MR. BOOTE: I think when gold is mentioned, people look in my direction because the IMF has the gold--in this context, at least.
Let me be clear as to where we are. There was a proposal--there has been a proposal on the table from the Managing Director of the Fund, made first in September 1996, for sales of up to 5 million ounces of gold to finance the continuation of our ESAF program and the Fund's contribution to the HIPC Initiative, in the context also of bilateral contributions.
I can go into more details if you want, but in summary now, I'm very happy to say that there appears to be a move towards international consensus in favor of gold sales. The proposal on the table is 5 million ounces from management. Some places, as I'm sure you've seen, some members of our Board have suggested more. But I can't tell you that agreement has been reached. This is still a fairly sensitive subject. I think you know that, particularly given where you come from.
But I'm happy to say that we're moving towards agreement to that, and that is obviously going to be a very important part, assuming agreement is reached, of how we finance the costs of those two initiatives.
QUESTION: I wonder if I could bring down the level of technicality a bit for those of us who don't follow the ins and outs of this thing on a daily basis.
I wonder if you could explain why the first initiative doesn't seem to be working so well in general. And if you could put this even in a broader context of, you know, why the initiatives that came up, as I recall, at the Naples G-7 summit, which involved forgiveness, I guess, of some of the bilateral debt--you know, why this isn't--if you're conceding that this isn't working as well as it was supposed to, you know, why you think that is.
MR. VAN TROTSENBURG: I think there are two aspects to it. One is talking about the sustainability targets. That is, I am talking about the net present value of debt to exports. That is one of the targets we are setting by our Boards, and that range was established in the current HIPC framework on the order of 200 to 250 percent.
I think while most of the countries achieved--or got the lowest targets, it is very clear that these economies are highly vulnerable, and this was also known at the outset. However, what is very clear is that the sustainability concept deals with probabilities of exit. So while there was a sense that this could provide a sufficient exit from the debt trap, if you wish, what you are now seeing is that if you have price falls in 20 percent of some countries, if you look at the coffee exporters, then it's clearly a matter of concern if these countries can permanently really exit.
So many people--and in the consultation process, people have raised you need to give these countries a higher certainty of exit, i.e., a better cushion. And that means if you want to give a higher cushion, you could do that through various ways. One is by lowering the targets. That's one of the criticisms.
The second one is dealing with the timing issue. As people say, it is too slow. Here there are--I think there is a combination, if you wish, starting maybe with the external one, is you would like to move as quick as possible. In the group we have evaluated thus far two countries for which we have prepared preliminary debt relief packages which have fallen into--back, actually, into armed conflict. They are Guinea-Bissau and Ethiopia. That raises issues how you can move forward as quick as possible.
At the same time, the issue is how do you best look at the timing horizon, and here many of the criticisms that have come is, Are we not maybe too strictly looking only at the timebound conditionality versus maybe a much more outcome-bound? What do I mean? It's basically that maybe one should look more to results and basically leave it to the government to decide how quickly they want to implement reforms.
It is very difficult sometimes out of Washington to exactly determine it will happen in two or three months. It's better that there is a sufficient ownership. There's a lot of debate in the Bank about aid effectiveness and results on the ground, that you would like maybe to see how that could be modified and that you leave it up to the government to decide how quickly they can go forward with structural reforms. And that really leads then--the more that you could have different types of arrangements where you could maybe have a quicker deal with the governments, but then leave the implementation up to them so that they can come to the final point where they get full debt relief.
QUESTION: Mr. Blustein, Washington Post, Pretend you're at a cocktail party talking to someone who has no idea of what the World Bank does [inaudible].
MR. VAN TROTSENBURG: Well, if you want to come back to the very basics of the design, why did we have timing and why did we have stress performance, it dealt with a moral hazard issue. If you would actually basically deal with an issue of how do you deal best with a country when you provide debt relief, that you don't want to have debt relief wasted. Okay? And that you basically have two things. One is that the government does its part, meaning it will do its reform side, and the international community commits itself to do its share, meaning providing comprehensive debt relief. And that is the fundamental thing, that there is a shared responsibility--on the one hand the government doing something, and on the other hand the international community doing something.
But at the same time, if you have that premise, that you then set what would need to be done. And there are then two things. It's basically that you deal with the performance issue that can be in the economic area as well as in the social area. And there is this discussion about what we call track record. It's how long do you need to show that you are implementing the necessary reforms until you can qualify. And there is clearly a tension how people evaluate what the appropriate track record is.
Some people say you should give it up front. Others say you should wait longer. And these tensions you see certainly in our Boards as well as in all the public discussions.
On the targets, they have basically been set on the basis of past experience. And no scientific thresholds which have been established for the debt sustainability targets. But they were established as a result of the observations we have made with rescheduling and non-rescheduling countries.
And, again, as I mentioned earlier, there are tensions that some people say you should provide more debt relief, you give them a greater cushion; and other things, they say, you could do it with a basic exit because they know that the poorest countries will receive for the foreseeable future sustainable inflows in terms of grant money and concessional finance.
MR. BOOTE: And I would like to add something.
I think the question was, are we doing enough? I mean why do we think there is so much criticism? I mean why have we not delivered more?
I would like to address that question. I think the answer is a mixture of two things. First of all, I think the program in many respects has been quite successful. We have had 7 countries. We have committed quite a lot of money for a new program.
However--and there is a very important however--there has been a very effective public campaign by quite a number of people represented in this room which has raised expectations in this area. And, against raised expectations we have failed to deliver in a sense.
That is why we're trying to strengthen the initiative now; that's why the international community is trying to work a more effective program out. I am disappointed in one aspect which is, in fact, something that Axel has referred to.
One of the main reasons we haven't had more countries in is because of conflict and war. I think that is a major issue. It is one that is quite disappointing, I think, to the international community. It gets back to a fundamental issue at this point should we be providing debt relief to Ethiopia, for example?
I would answer that in the negative, given the conflict with Eritrea, but it is a hard question, which in a sense, you have to address.
Axel talked a lot about policy conditionality. The basic issue here is our trying to make sure that debt relief, which is Western taxpayers money, is made effective use of in the recipient countries towards what I have said before are overall objectives of sustainable development with a focus on poverty reduction.
That's what we're trying to do. We can argue about the details of how it should be done, but that is the objective.
MR. GAETA: Let me just say for somebody who spends a lot of time at cocktail parties and less time on panels on debt relief--
MR. GAETA: --the struggle within the Bank and the Fund is to make each aid dollar count. The total amount of debt of these 40 poorest countries is between $150 and $200 billion. This year the entire international community made available about $40 billion for development assistance to all countries for all reasons.
How we apportion those scarce dollars for debt relief versus the money we make available for a health project or a sewage plant or a road matters a lot. So, there is a struggle going inside the Bank and the Fund and particularly the more we learn about what makes aid effective. There is no room for waste.
So, we really just want to make every dollar count.
MR. MILLVERTON: Damien Millverton from Dow Jones.
Just in terms of the role of the International Monetary Fund and the World Bank, I don't know if it's been really fully explained as to the financial role that you guys play. And this is, well, obviously, you handle a lot of the debate and a lot of the sort of framework debate. But when it comes to telling people that you are going to be selling gold for the ESAF or HIPC, people sort of blindly nod their heads and say, oh, yes, that makes a lot of sense. But what do you do with the money? How you actually support its concessional loans, but in what way does that come about?
People seem to think of debt relief as being the Paris Club gets together and says, oh, this is going to hurt, but we will write off X billions of dollars. And it's just a paper transaction between accountants.
But can you put it in terms of how the IMF and World Bank actually do these in a monetary sense, dollars?
MR. VAN TROTSENBURG: In the World Bank sense, is that we deliver the debt relief through two vehicles. One is the HIPC Trust Fund which has been established to provide part of the debt relief. This Trust Fund gets its money from transfers from IBRD net income. And thus far, transfers have been made in the order of $850 million.
That trust fund can deliver the debt relief in two ways. One is that it buys IDA credits and then cancels them vis-a-vis the country. The second option available is that the HIPC Trust Fund service IDA debt service as it falls due. For example, in the case of Bolivia, 100 percent of the IDA debt service, as it is falling due in the next couple of years, will be covered by the HIPC Trust Fund.
And then you have another instrument and that is IDA grants. The country can also receive during the interim period--that is between the decision point and the completion point, the completion point being the point when they get the full relief under HIPC--they can already receive in that interim period IDA grants. So, these are the three mechanisms which we can deliver. If you want to have a sense on how it is being delivered, thus far, about 30 percent of the HIPC debt relief has been delivered through IDA grants and 70 percent through the HIPC Trust Fund.
Let me also make one more point about mentioning something about the HIPC Trust Fund. The HIPC Trust Fund can also be used by other multilateral organizations, which have difficulties delivering their share, like the African Development Bank and some smaller multilateral institutions, and in that case there are bilateral contributions to the HIPC Trust Fund to help complement the resources of these institutions to deliver the debt relief.
And that is a major fund-raising effort. Thus far, we have received pledges and/or contributions in the order of $450 million from about 19 countries.
MR. BOOTE: Can I go back and make two points?
First of all, from a general point of view, I think it's very important issue behind the question, which is the HIPC initiative is the first time that the international community, as a whole, has tried to act to establish debt sustainability from the point of view of the debtor. That means all creditors are involved including, for the first time, multilateral institutions.
The Fund does its part as part of that process. Multilaterals joining the Paris Club that you referred to, by providing grants to countries at the completion point which are used to meet debt service to the Fund as it falls due.
In terms of financing gold sales, what do we do with ESAF money? ESAF money is used to support programs of adjustment and reform with our poorer members. It has subsidized resources with a 0.5, half a percent interest rate, repayable over 10 years.
MR. PELOFSKY: Jeremy Pelofsky from Bloomberg.
I have a couple of questions, if you can. You say that there is between $150-to-$200 billion in debt that these countries are facing. And there's only $40 billion in ODA that is put out annually. This process is--you have put out $8.5 billion so far in debt relief in the two years it has been going on.
Is this not in some sense taking a pair of scissors to cutting as much grass as there is on the mall in Washington, D.C.? I mean so tiny of a fragment to do this.
And from your own report here--that is one question--your own report here seems to suggest that the debt relief that has been provided is not helping these countries get out from under the burden of debt service, I mean of the countries that have already received some service.
Can you explain how that is and what these proposals attempt to do about that?
MR. VAN TROTSENBURG: On the debt service issue--the report, indeed, shows that in some countries the debt burden in absolute terms will remain the same or can go up; in some countries it goes down.
What the report also shows that in all countries in relative terms if you relate it to exports or government revenues, these indicators go down. These are, after all, often growing economies. So, in the relative terms this goes down.
The problem on the debt service. Let me address that a little bit. That, as I mentioned before, the World Bank has two different instruments. We can cancel IDA credits but we can also service it as it falls due.
For example, a good way to illustrate this issue is, for example, Mozambique, which has often been criticized precisely because of this point. In the case of the World Bank in the 1990s, we dispersed about $1.2 billion in these highly concessional resources of IDA.
At the same time in the 1990s, these countries paid back, Mozambique paid back in the order of $4 million in amortization payments, and if you add the interest you are talking about $45 million in debt service.
The question here is that the World Bank could at the end of this process, could say the HIPC Trust Fund can service debt service as it falls due. That's one thing. But if you disperse $1.2 billion and you have $45 million against this, there is not an apparent liquidity problem.
So, one of the ideas is to wipe out half a billion dollars of IDA debt and you have half a billion dollars stock reduction.
So, one of the things is that it depends a little bit in the discussion with the governments what could be the best strategy? And, therefore, I think one needs often to look at these kind of things in this context from creditor with the debtor what the best strategy could be.
And that is sometimes forgotten in this debate that given that HIPC countries are not facing a negative net transfer what you often are associating with, for example, in Mexico or in Argentina in the 1980s, where the country was paying more out of the country than it was receiving, then the debt service gets a complete different meaning. But if you have a country like Mozambique, for example, that they have, yes, a debt service in the order of $100 million, at the same time they get positive net transfers in the order of 50, 60 percent of their GDP and then you have to evaluate what is the best strategy to help them.
And that is basically what we have seen thus far with the cases; that you can choose between the options and it depends then on the outcome of these discussions with the government, what the ultimate delivery mechanism will be.
MR. BOOTE: I would like to add something on two points.
First of all, the stock of debt. You got to remember that the HIPC initiative acts on top of the existing traditional debt relief mechanisms.
So, when you start talking about, well, these countries have got $200 billion of debt and all you're doing is providing $6, $8 billion worth of relief so far. That misses the point.
There has been--and these are very difficult numbers--but there has been billions worth of debt relief already provided by your representatives of official governments in the Paris Club, both through writing off older claims and through providing 2/3 reduction on a good portion of their commercial claims. That's point number one.
On debt service, Axel has made a series of points. Just one thing to add. The table that everybody is focused on--and I believe Claire Shorr referred to when she talked about debt service in reality not falling very much--compares debt service after HIPC assistance with debt service actually paid before.
You got to be very careful looking at debt service paid before. Why? Let's take an obvious example. Take Nigeria.
Say everything goes well in Nigeria, which we all hope, and Nigeria comes in and has, for example, debt relief from the Paris Club. Will it pay more or less after that?
It's going to pay a lot more. Why? Because it never paid any debt service over the past 10 years to Paris Club creditors at all. So, any deal is going to involve Nigeria paying more.
So, when you look at debt service paid numbers be a bit careful about the comparison you are making because there are a number of reasons why those numbers might have been low in the period before.
MR. GAETA: Here in the front and then back.
MR. EGAN: I am Mark Egan [ph] from Reuters.
A question for Mr. Boote. You said that you have essentially failed under raised expectations.
And given that, will there not be some sort of call to maybe scrap the basis of your HIPC initiative at the moment and come up with some sort of plan that might be less complicated, less bureaucratic and a little bit faster?
MR. BOOTE: Okay. I don't think I used the word, failed. I said in relation to expectations we had perhaps not delivered. But anyway, it's a good question.
We are engaged in an exercise to try and strengthen and enhance the HIPC initiative, make it more effective in a way that provides more debt relief, in a way also that strengthens the existing mechanisms which help with the overall goal we are trying to achieve of sustainable development and poverty reduction.
I don't think there is any willingness that was--we have had discussions in our Boards, as you talked about--people see this as a process of building on what has been done so far.
I.e., the earlier question, have you failed so far? No, that is not my view and I don't think it's the view of the international community.
We're in the business of strengthening what we have so far achieved not junking what has been done so far.
There is a lot of willingness to see how the initiative can be strengthened. I gave you ideas. Axel also has given you ideas on lower targets, earlier debt relief, maybe in the form of earlier assistance by multilaterals, ways of making the process more effective in trying to reduce poverty. But no wish to get rid of the framework.
A wish, perhaps, to simplify it.
MR. GAETA: In the back, in the blue shirt.
QUESTION: Yes. Jose Lopez of the Mexican News Agency.
When you are expecting to complete your new debt relief program with Honduras and Nicaragua to deal with the impact of Hurricane Mitch, and what are you planning exactly for the case of El Salvador and Guatemala, which by your own figures seem to be receiving a reasonable amount of dollar contributions to deal with these problems.
MR. VAN TROTSENBURG: Let me start with El Salvador and Guatemala. These are countries which are not included in the HIPC list. They are also not IDA-only countries. They are IBRD borrowers. As such, the HIPC framework doesn't apply.
In the case of Honduras and Nicaragua, yes, these are countries which are HIPCs. We have been out there in Nicaragua and Honduras to prepare with the authorities the debt sustainability analysis. We are in an advanced stage and I would expect we should be circulating those documents in the near future.
QUESTION: You both have been working now with the HIPC for a few years, and you have experience with it. You have now a proliferation of plans and ideas by the G-7 countries and everybody else who thinks that HIPC has to be reformed.
If the two of you could make the changes, what would you recommend?
MR. VAN TROTSENBURG: I would start with some of the principles. I would try to do it a lot simpler. I would work on a simplification of the targets, and personally, I would put more stress on the--again, personally--on the performance issue and on the ownership issue for a government.
What I mean by this is that I think it is sometimes very difficult to anticipate how long the reform process takes. So I would personally see some merits to look at determining, at the decision point, the key things which need to be done--for example, in the social sectors--and have an agreement with the government that they need to build the necessary ownership with the donor community, with civil society around those key reforms, and that until they have done this, they couldn't reach the completion point. But the government in this process is really in the driver's seat, to determine the design.
For example, one of the ideas which has been coming out of the consultation process is to link the whole social agenda much more to the 2015 social targets, and sometimes this remains a paper exercise. So one of the ideas could be that you give that much more "beef", if you wish, to let the government, together with civil society and the donor community, to see how they can achieve the social targets, and on the basis of this, they have also a better notion of what the financing needs will be.
There you can have a nice way in which you say a certain part needs to be done by the government, and there is a part that will come through grander, those types of concessional finance, but then a good chunk could come from debt relief. There you could have a much more integrated approach. I think that could be a very helpful way forward.
MR. BOOTE: Speaking personally--I have to stress that again at the beginning--I would introduce lower targets, both export and fiscal targets, simplifying them properly to one number.
I would very much lower, possibly eliminate, one of the fiscal thresholds. I would do that for the poor HIPCs. In other words, I would have a special consideration for HIPCs which are below, say, a per capita income of 500, with possibly added to that these lower targets for the countries which have been hit by a natural disaster--the question we had from Mexico, I think.
I would bring forward assistance by multilaterals into the second stage, and I would encourage bilaterals to be more generous on their existing ODA claims, and to find ways in making sure that we don't get into this mess again by having codes of contact about lending on commercial terms to HIPCs.
MR. GAETA: Let me just add, on behalf of both men and both institutions, I think if we could have done it over again, we would have replicated this process that we've been through in the past few months with the NGOs and the churches and groups who care so much about this issue, and have done it from the very beginning. We have learned a tremendous amount over the past few months, and it would have been nice to have had that from the outset. But here we are.
MR. BOOTE: Can I add something on that?
I think this has been a learning process on both sides, though. I don't think the NGOs, churches and everybody else would have been in such a good position to give us such informed comments two or three years ago. I mean, it's been an education process in both directions, I think, in this area.
QUESTION: Diana Gregg with NA.
I would just like to know, in an effort to try to stick to some of the practical issues here--In your paper it says the packages for Ethiopia and Guinea-Bissau are on hold because of their armed conflicts. I mean, I'm anticipating we're going to get an announcement out of the Interim Committee and the Development Committee and it will move forward a little bit at the next summit.
How are countries like that going to be dealt with? When is that decision made, and who makes it, on what to do about their debt--whether they're going to get the debt relief.
MR. VAN TROTSENBURG: Well, we have a two-stage process here. What we do in the first one is what I mentioned, a preliminary HIPC document, where we have undertaken the assessment of the country and lay out the case to our boards, but also to present these documents to the donor community, the Paris Club, and all the other multilateral institutions.
Normally we would be able to proceed. I the case of Guinea-Bissau, the destruction must be so substantial that we would need to make a full reassessment. So you couldn't provide debt relief on the basis of the old assessment, given that the economy has declined in a major way, and exports have collapsed. So the original package will be completely insufficient to deal with the needs of that country.
MR. BOOTE: Can I add? Fund missions currently in Guinea-Bissau are making a reassessment. Nobody can go to Ethiopia at this point, I think for other obvious reasons, though we are talking to the authorities here.
Who makes the assessment? The Bank and Fund Boards will make an assessment as to when one can have agreements on economic programs with Guinea-Bissau and Ethiopia, which achieve the objectives we're all looking for; i.e., improving the lot of the people in those countries. Therefore, when it's appropriate, to provide debt relief under the HIPC initiative in a way that one can make sure that there is good use made of the money.
QUESTION: Marty Krutzinger with the Associated Press.
I just need a very basic question answered. I think I'm on page 39 of Annex I of your HIPC initiative. Am I reading it correctly, that since this thing started in '96, only two countries have actually gotten debt relief--Uganda and Bolivia? Is that right?
MR. BOOTE: There's a two-stage process, a natural receipt of debt relief and a completion point. Yes, there are two countries, Uganda and Bolivia.
There are another five countries to which debt relief has been committed, and some of the creditors involved have already provided some of that debt relief--for example, the Paris Level, so the World Bank is involved some. So there is some already in process for those countries. But the full packages have not yet been received.
QUESTION: The date assistance is to be released, that just refers to when IMF and World Bank money--
MR. BOOTE: No, it refers to what we call the completion point, which is when all of the creditors deliver their complete packages of assistance.
MR. BOOTE: There will be, as I have said, some creditors who have brought forward some of that assistance to what we call the second stage, between the decision and the completion points.
All of the assistance is delivered by the last column, "Date assistance to be released" point.
QUESTION: But I am correct that, as far as--I'm just trying to describe this for readers, that two countries have--yeah, good luck. I know.
But two countries have gotten relief--
MR. BOOTE: Actual relief.
QUESTION: Actual relief from this program since '96.
Then, if I can take you to Table 14, which is the last table, how do I relate that to Annex I, the table there? In other words, if I could just ask, it seems to me that you seem to be breaking down how bilateral relief works and how the World Bank and the IMF--are they the same or--
MR. VAN TROTSENBURG: No, this is a time profile. Essentially what many creditors want to know is, based on this costing assessment, when these commitments are expected to be made. Because once a country gets to this decision point, the point where the Boards and the creditor community decides to provide the HIPC debt relief, when those decisions have to be made. There people didn't want only to have the aggregate number, but also the time profile, so that you then can make the necessary planning also for the respective Boards.
QUESTION: I guess, if I could just ask, when you have a column of '97 and a column of '98, those years are past. Are you saying that's what would have happened but didn't happen?
MR. VAN TROTSENBURG: No, no. They have happened. But in the case of the Bank, when a country gets to the decision point--that's what Tony was mentioning--those seven countries, the money has to be there.
The first table you mentioned earlier, where you saw there are seven countries to which debt relief has been committed but has not been disbursed--in two cases it has been disbursed. For the rest, it has been committed.
If you relate that to Table 14, you see in '97 and '98 that these are the amounts that we had to commit, be it through the HIPC Trust Fund or in terms of IDA grants.
MR. BOOTE: Just to confirm that, this table reflects amounts committed at the decision point. That reflects the reality for a number of institutions, like the IMF. We're a very conservative financial institution. When we commit money, we have to have it. I mean, this is an important issue.
Countries that have reached the decision points have a commitment from the international community, almost a contract. Provided they do certain things, they get debt relief. When we make that commitment, we put it in our accounts. You know, we have to have the money to make that commitment, and that is what this table reflects.
QUESTION: Sheel Kohli from the South China Morning Press, just another novice of all this.
Could you just describe whether there's any prospect for Asian countries to actually qualify? I think there were some potential applicants, but there have been some problems. I wonder if you could update us on where we stand on that.
MR. VAN TROTSENBURG: There are three Asian countries listed as HIPCs. They are Myanmar, Laos and Vietnam. In the case of Myanmar, we expect this country ultimately will need debt relief. But you know there is a state of dialogue between Myanmar and the international community.
MR. VAN TROTSENBURG: I think you would know better probably if you follow East Asia.
QUESTION: What about Laos and Vietnam?
MR. VAN TROTSENBURG: As far as Laos and Vietnam, they could reach their prospective decision points in this year.
MR. BOOTE: If I could just add, on page 11 of the second document, the one with Table 3, it has a list of the 29 countries which we think will need to receive assistance under the Initiative. You will find Myanmar there.
You also have a table earlier on, page 9, a list of the timings of when we want countries to go to decision points.
MR. GAETA: Over here in the corner.
QUESTION: Sue Kendall from Agence France Press.
I just have one fairly basic question. This whole revamped HIPC implies a lot more money. How confident are you seriously that this money is going to be forthcoming?
You mentioned at the beginning that five G-7 countries have come up with new plans. The problem is that they're all different. What is the real expectation that by the annual meeting there will be some kind of agreement for more money and how it's to be shared out, given at the moment that everyone seems to be playing to a different tune and nobody seems quite sure where they're going with this.
MR. VAN TROTSENBURG: I would not say that all these proposals are incompatible. There are many common elements in it. So I would not see that these proposals are completely different from each other.
Also, let's take a step backward. When this initiative started, the way we have implemented thus far, certainly with regard to financing, was that the commitments have been provided as we go along. So basically, it's almost on a "pay as you go" basis.
One of the things is, if you think that by the annual meeting you have some magic pot of $20 billion or whatever, I don't think that is realistic. What we have seen thus far is that people are, in principle, are willing to move forward, and on that basis we have also been getting a lot of pledges.
In 1996, for example, in the HIPC Trust Fund, there was zero in it. People knew at that stage that African Development couldn't deliver that debt relief. That has meant that we have to fund raise as we go along. There was at no stage an immediate indication that everybody would write a blank check. So I think we need to see also in what way people have been progressing.
I think what is encouraging from the G-7 proposals is that there is a willingness to deal with this problem more up front, and I suppose that will also involve an increasing willingness to finance it.
MR. BOOTE: Can I add something on that?
I think one should break the issue up a little bit into two. The first is, how does one finance action by bilaterals in the context of the greater assistance they would have to give the HIPC Initiative, by which I mean Paris Club creditors, official agencies.
I think there is already widespread agreement, in a sense--not confirmed--but there's a widespread willingness to take greater action in the context of meeting, if you want, more ambitious HIPC targets by Paris Club creditors. There has been a lot of talk of giving more debt relief in the current limit of 80 percent under Lyon terms. I think there's a willingness there.
There is a second issue, however, which is how do you finance multilaterals' participation in this Initiative by the action that multilateral institutions have to take on their claims if you want to have more generous HIPC targets. There, some multilaterals really don't have many resources. The African Development Bank is one, which is obviously, as Axel referred to, a very difficult issue. There will have to be some hard talking amongst the major bilateral creditors and donors as to how this might be done. We have made progress, but there has to be more discussion of that.
There have been important issues of burdensharing raised by some of the holders of the largest current claims on HIPCs, notably France and Japan. There are issues here that will have to be resolved.
There is also issues by some of the other major contributors to the HIPC Trust Fund. Some of the Scandinavian countries and the Netherlands have also raised burdensharing issues. Who's paying for this improvement? Those are difficult issues which I can't address in any detail here, but clearly there needs to be some discussion as to how one moves those forward.
MR. GAETA: I think we have time for maybe one, maybe two more questions.
QUESTION: My name is Charles Aniagolu from the BBC World Service. I have to admit as well that, being British African, I also have interest in sort of the debt campaign.
What I want to ask you is, why was Nigeria placed on the HIPC list when it had a monstrously repressive government, and then unceremoniously taken off when a government that was demonstrably committed to democracy came to power?
MR. VAN TROTSENBURG: The way this list was initially constructed was basically looking at only debt indicators. You know, the World Bank has been publishing debt tables, previously called world debt tables, and there was a categorization, first of severely indebted poor countries, and then we had HIPCs. There were different criteria used.
This was purely, purely on those statistics in which basically these countries were listed. Mind you, when you said this was not a democratic country, in the HIPCs, if you will go through the list, you will see that there are a fair amount of nondemocratic countries, and there are even almost noncountries, like Somalia, where there is no central government. So basically, what we did here was purely on the basis of those debt numbers, from which this list was created.
Now, that it was taken off had another implication, that once we had the frame work in place and approved, one of the criteria was that this country should only borrow highly concessional or relying on grand financing. That means that it should not be able to borrow nonconcessionally.
In the case of Nigeria, this is what we call a bland country, where a country borrows commercially as well as highly concessionally. That is the reason why it was taken from the list, because the countries which ultimately qualified under HIPC are only relying on highly concessional financing, if not grand financing.
MR. BOOTE: I would like to address the Nigeria issue more generally.
As I am sure you know, we have a staff-monitored program with Nigeria. We very much hope that we'll be able to negotiate with the new, incoming democratic, as you have said, Nigerian government, a Fund supported program with ESAF resources.
The key issue there will be not the HIPC Initiative. It is back to the "old stuff", if you want, traditional debt relief mechanisms from the Paris Club. Nigeria has, from memory, something like $17 billion U.S. dollars worth of debt, mostly in arrears to Paris Club creditors. As I'm sure you know, it's been paying mostly commercial banks and hardly paying official creditors at all.
The big issue--and this will be a very important political discussion--is what treatment will Nigeria get from the Paris Club on those debts.
MR. GAETA: Last question. Vena.
QUESTION: Vena Siddharth with OxFam. I have a question for Tony Boote.
Tony, you described the aim of HIPC as to reinforce sustainable development with a focus on poverty reduction. As you know, many of the external critics have criticized the Fund's approach to HIPC as being one of trying to get countries into ESAF and to enhance structural adjustment facility programs, rather than focusing on the poverty issue.
Mr. Camdessus, at his press conference two days ago, described the aim of HIPC as getting countries into economic reform. He said the amount of debt relief wasn't as important as getting countries into economic reform. He notably didn't mention the poverty issue.
So if it's true that the Fund is looking at poverty now much more seriously, can you give an example of how an ESAF program, some of the suggestions perhaps that have come out in the HIPC review, are being taken into account in how the Fund is looking at the poverty issue?
MR. BOOTE: Vena, it would be a bit early for me to tell you that suggestions of a HIPC review, which has been going on for the last few months, have been reflected in ESAF. But I would like to address the more general issue. I think it's a good question and I'm happy that you asked me that.
Because it enables me to say something that I want to say.
We have been looking very carefully at ESAF arrangements. There have been reviews done by both external and internal reviewers of what does ESAF do. The evidence is clear that ESAF has a positive effect on growth. This led to a two percent higher growth in ESAF-supported countries than non-ESAF supported developing countries, and it also helps on the issue of income distribution.
But Vena has asked a specific question. What more are we doing? We have looked particularly at health and education spending. Contrary to myths that seem to be out there, health and education spending rises significantly under ESAF-supported programs. We've looked at that. We know that over the last decade, roughly speaking, health and education spending in ESAF-supported programs has risen, on a per capita basis, by five percent a year.
Now, the old idea was that the Fund came in, squeezed all expenditures and achieved macro adjustment through expenditure restraint, and, in a sense, let this fall where it may, so to speak. That is not true any more. We go to great efforts, in consultations with our colleagues from the Bank, to try and put in place social safety nets, to try and make sure that the burden of adjustment in countries which have to adjust in a macroeconomic sense falls not on their poorer inhabitants but on those that can more afford it.
So there is a lot of focus on that now, and that is something we're continuing to work on. We have pilot projects with the World Bank on greater cooperation and attempts to make this more concrete. So I would very much like to suggest to you that what we're trying to do through ESAF is what I have said--though I don't want you to quote me as contradicting my boss, or you may not see me again--what I have said is, namely, that the ESAF programs are trying to produce sustainable development. We're trying to put a focus on poverty reduction there, and we're trying to provide HIPC debt relief in a way that helps that process.
QUESTION: Could we have your name again?
MR. GAETA: Tony, he wants to know who you are one more time.
MR. BOOTE: I'm Tony Boote. I am Division Chief of the Official Financing Operations Division. I am really responsible for the HIPC Initiative in the Fund--that's really what I do most of my time. That's in the Policy, Development and Review Department of the Fund.
For me, say that I'm responsible for the HIPC Initiative for the Fund. That will do.
MR. VAN TROTSENBURG: My name is here [indicating] Van Trotsenburg. The first name is Axel.
MR. VAN TROTSENBURG: Exactly. It's just a short title, Manager of the HIPC Unit.
MR. GAETA: Let me close by saying that if by any chance all of this was not crystal clear, we have a website, an entire HIPC website devoted to hopefully explaining a lot of this. There are phone numbers on there, so please feel free to call us any time.
Thank you very much for coming out.
[Whereupon, at 11:08, the press briefing was adjourned.]
IMF EXTERNAL RELATIONS DEPARTMENT