December 8, 2005
MS. BHATT: Good morning. Welcome to this press briefing on the Multilateral Debt Relief Initiative, what we call the MDRI now. I have here with me Mr. Mark Allen, who is the Director of the IMF's Policy Development and Review Department, and Ms. Martine Guerguil, Chief of the Official Financing Operations Division in the Policy Development and Review Department. Mr. Allen will make some opening remarks. Then we will take your questions.
But before we begin, let me just go over some ground rules.Mr. Allen's remarks and the contents of this press briefing, as well as the documents that were posted on the online Media Briefing Center, are embargoed until 12:00 noon today.
I would also like to welcome the press watching by the Media Briefing Center webcast. We will try to fit questions asked through the webcast, but if we cannot, someone from Media Relations staff will follow up on any questions that are submitted online. Mr. Allen?
MR. ALLEN: Thank you very much, Gita.
The Multilateral Debt Relief Initiative was launched by the G-8 in June this year. It proposed at that time that the three international financial institutions—the IMF, IDA, the soft loan arm of the World Bank, and the African Development Fund—cancel 100 percent of their claims on the 35 countries which they identified as HIPCs—that's heavily indebted poor countries—plus three additional countries which are currently in arrears to the three institutions.
We have been working since this proposal was made in June, firstly to reach a consensus in the Board on how the thing should be implemented, and, secondly, to get the various documents through so that the proposal can be implemented. And we are now at the point where we have done most of the work inside the institution so that the Fund can deliver debt relief to a large number of countries as of the start of the new year.
The rationale for this initiative stems, again, from the HIPC Initiative. The HIPC Initiative, as you may recall, aimed to reduce to sustainable levels the external debt burden of the most heavily indebted poor countries. This initiative goes further in that it provides full debt relief on the claims of these three institutions so as to free additional resources for these poor countries to help them reach the United Nations Millennium Development Goals.
The three institutions—the Fund, IDA over in the World Bank, and the African Development Fund—all have their own funding systems, their own governance structures, their own Articles, their own legal requirements. So the approaches being taken in the three institutions may—and, in fact, are varying somewhat between the institutions.
We are rather proud of the fact that we have been able to move so quickly on this initiative so that we can deliver relief on claims outstanding as of end 2004 at the end of the year.
The Fund needed to modify the G-8 proposal slightly so as to meet certain requirements under the Articles of Agreement—in particular, the requirement that when the Fund's own resources, the resources of the Fund that belong to the entire membership, are involved, then they must be available to countries on the basis of uniformity of treatment.
So this led in the case of the Fund—we came up with a solution for this, which led to the inclusion of two further countries in those eligible for debt relief in the Fund. These are countries with per capita income at or below $380 a year, and this is something which only applies to the way the Fund is required—the Fund has to implement this initiative in conformity with the Fund's Articles.
So let me explain now how this initiative is going to work, how the MDRI is going to work in the Fund.
Countries, members of the Fund, which have per capita income of $380 or less—that is using the 2004 World Bank Atlas methodology-countries have per capita income at $380 or below will receive debt relief from the Fund's own resources. The Fund's claims on these countries which were outstanding as of January 1, 2005, and are still outstanding, will be entirely written off. This group, as I said, includes two countries which are not HIPCs; those are Cambodia and Tajikistan. Otherwise, all the other countries with income at or below $380 which owe money to the Fund are HIPCs.
The profits from the gold—the off-market gold sales that we conducted in 1999 and 2000—well, we will transfer them to a special trust, which we call the MDRI-I Trust, to cover debt relief for these countries with per capita income of $380 and below.
Now, the initiative, as proposed by the G-8, was to apply to all HIPCs, so for HIPCs which are richer than $380 a year—I say "richer," but this is a very low threshold. This is where income is more than $1 per person per day. For HIPCs above that level, they will receive relief from a pool of money which has been contributed to the Fund by individual members. These are contributions that were provided by members in the past, by some 43 members, to subsidize our PRGF trust—to subsidize our lending to low-income countries. This was money in what we call the subsidy account to the PRGF trust, that is, the Poverty Reduction and Growth Facility trust.
Now, part of these contributions, which originate from the generosity of 43 of our members, will be now transferred to another trust, which we're calling the MDRI-II trust, which will finance the debt relief to these other HIPCs whose income is above $380 a year.
So which countries are eligible for this relief now? We believe there are 20 countries which may qualify for relief, we hope, at the beginning of January 2006. Among them are 18 HIPCs which have reached the completion point under the HIPC Initiative. For those who are perhaps not completely familiar with the arcana of how the HIPC Initiative works, when countries qualify for HIPC assistance, they reach a decision point; at which point they can receive some relief. They need to implement certain measures and policies over a period of time. Then they reach the completion point, at which time debt relief under the HIPC Initiative is definitive, is given.
There are 18 countries which have reached the completion point of the HIPC Initiative, and these will be entitled—subject to certain qualifications—to receive debt relief immediately under the MDRI. Ten of these have per capita income at or below $380, and eight of these have per capita income above $380. And we have the two additional countries, the two non-HIPCs, which may also qualify at the beginning of the next year.
Now, other countries, all of which, of course, will be subject to the HIPC Initiative, will receive the full write-off of their debts owed to the Fund which were disbursed prior to January 1, 2005, and are still outstanding at the time they reach the completion point under the HIPC Initiative. For these countries, there will be no further formalities. If they qualify for the completion point of the HIPC Initiative, they will qualify for all relief under the MDRI.
As I have mentioned a couple of times already, the debt eligible for relief covers all debt owed to the Fund at the end of 2004—I said January 1, 2005; I believe I should have said the 31st of December 2004—that is still outstanding at the time when the country qualifies for relief.
There's no provision for any relief on debt disbursed after January 1, 2005, or of any reimbursement of payments the country may have made on its debt after January 1, 2005. So it covers the debt that was outstanding then and is still outstanding as of the time when the country will get the relief.
The cost of this operation to us, to the Fund, is about SDR3.4 billion; that is about $4.8 billion in end-2005 NPV terms. Of this amount, SDR1.3 billion corresponds to the costs of the HIPC Initiative, and we had already made provision for those amounts in our accounts.
The incremental cost of the MDRI proposal is SDR2.1 billion, somewhat over $3 billion; and as I mentioned, the resources needed to cover this cost are coming out of the profits of the 1999-2000 off-market gold sales and out of the contributions of donors to our PRGF Subsidy Account.
There will be additional resources needed in an amount of over SDR200 million, or $300 million, to ensure that the Fund remains in a position to be able to continue lending on concessional terms to its low-income members.
So where are today on the implementation process? The legal framework for doing this operation has been approved now by the Executive Board. This involved taking certain decisions and amending the trust and setting up new trusts. We will publish today a bundle of documents that reflect all the work that has been carried out over the last six months to implement the initiative.
As I said, we are aiming to be able to deliver relief by the start of 2006, but there are a couple of things that have to happen before then. The first is that we require the consent of all the 43 countries which made contributions earlier to the PRGF subsidy account. The resources which they made available for one purpose will now be used for another purpose, and so we require their consent to that. So 43 countries are being asked at the moment to give their official consent to this. We've received some consents, and we are working hard to get the rest of them in as early as possible. We can't move until we have all those consents.
The second thing that we need to do is to check—to assess that all the 20 countries that I mentioned are eligible do meet the qualification requirements, and a Board meeting on that will be held in December.
Now, what are those qualification requirements? This is the final point I have here. We are not trying to create new hurdles for these countries. The spirit of this initiative is that countries which reach the completion point should get the additional relief required.
What we are doing, however, is making a check—since some of these countries reached the completion point under the HIPC Initiative maybe a couple of years ago, some even before that, we are making a spot check that macroeconomic performance, the implementation of poverty reduction strategies, and public expenditure management systems have not deteriorated since that point. Obviously, we hope they've improved, and we need to get that assurance to give us some comfort that this additional debt relief, this additional SDR 2 billion—$3 billion will be spent well in these countries.
However, we are not setting a new higher hurdle here. What we are doing is checking that the situation as of the completion point remains, broadly speaking, the situation still faced by those countries.
MS. BHATT: Thank you, Mark. We're ready to take your questions. As is standard practice, can you identify yourself and your affiliation?
QUESTION: Could you go through some of the figures again because I'm still a bit puzzled? The $4.8 billion includes previously agreed relief in the HIPC Initiative; is that correct? So what is the new cost that comes out of the G-8 proposal?
MR. ALLEN: The additional cost to the Fund of the G-8 proposal is SDR2.1 billion or about US$3 billion. That excludes the cost ultimately of treating the so-called protracted arrears cases. There are three countries—Somalia, Sudan, and Liberia—which have been in arrears for a long time to the Fund and to other institutions. Ultimately, they may benefit from this initiative, but the costs for them are not included in this figure.
QUESTION: How much money is going to be in the MDRI I trust from the gold sales?
MR. ALLEN: The amount of the profits on the gold sales that will be transferred is SDR1.9 billion or US$2.7 billion, which was not previously earmarked for HIPC operations. Do I have that right?
MR. LIN: Altogether, we have SDR2.5 billion in the SDA account, of which SDR 2.226 billion is the profit from the 1999-2000 off-market gold sales. Of this amount, SDR 1.5 billion will be needed for the MDRI. An additional need of SDR 0.5 billion for the continuation of providing HIPC assistance will be financed by both the profit and the investment income generated in the account.
QUESTION: The very last one was SDR 200 million—is what you need in additional money to fund this initiative? is that correct?
MR. ALLEN: Yes. Let me explain that. The Board had previously agreed that the PRGF would have a certain lending capacity, and this requires having sufficient subsidy resources to lend that amount under the PRGF trust. This particular operation takes away some of the subsidy resources that would otherwise be used for PRGF lending, and the G-8 has agreed that our capacity to do PRGF lending should not be undermined by this initiative. It requires then another SDR200 million contribution, or about $300 million, to make up our subsidy capacity so we continue our PRGF lending operations.
QUESTION: But that money isn't here yet?
MR. ALLEN: It's not here yet, but there's a commitment that it will be provided.
QUESTION: Just to be clear, the 20 countries that initially would be eligible for full debt forgiveness could possibly see—begin to get their debt forgiven as soon as—early next year, assuming the 43 countries all give their consent; is that correct?
MR. ALLEN: Assuming the 43 countries give their consent and the Board finds that these countries all qualify for immediate assistance, yes. We are working hard to try and ensure that those 43 consents do arrive by the start of the year.
QUESTION: Now, these SDR200 million that you need, that would not be an impediment to start forgiving the debt, right?
MR. ALLEN: No.
QUESTION: How many consents have you received so far from those 43 contributors? Do you expect to receive them by the end of the year?
MR. ALLEN: I do not have information on that. We have asked countries to give their consent by the 13th of December. Some countries have somewhat longer domestic procedures for doing that, and we'll be following up with them to try and make sure that we actually get them all in by the end of the year.
QUESTION: And the Board meetings on the countries that are going to receive the debt relief, when are they going to happen? By the end of the year or at the beginning of the year?
MR. ALLEN: Before Christmas.
QUESTION: Mark, I'm just trying to figure out, do you have any sense yet if many of these countries have already written this debt relief into their next budget?
The other thing is: Do you have any sense also what they're going to be using this debt relief for? I mean, is it to write—is it going to be put back into, you know, services or where exactly would it go or where would you recommend?
MR. ALLEN: We don't have any information about countries already having put this into their budgets, but we expect that will probably start to happen. I would note, too, that the intention is that the World Bank and on the African Development Fund will also deliver their part of the relief, which is certainly in aggregate much larger than the amount of relief that the Fund is providing.
What this relief will do is relieve the budgets of these countries of considerable expenditures which we are hoping will be used in furtherance of the Millennium Development Goals. We will be following up with countries in the course of our normal contacts how they are actually spending this money. It's not conditional in the sense that you don't get the relief unless you promise to spend it on health care, for instance, or education or something. It's not tied in that way. But the purpose of the relief is indeed to help countries meet the Millennium Development Goals, and so we will try and follow up to ensure that this happens.
QUESTION: Could I just have a follow-up? What if in your spot check you look at these countries that have gone off track, what happens then? Does one withhold it until it's corrected?
MR. ALLEN: Yes, if there are some of these countries where we feel there's been deterioration from the completion point, we will propose to the Board certain remedial measures and, once the country has taken those remedial measures, then the relief will be given. We would hope, too, that this action could be done relatively quickly. We're not trying to hold this relief up. We'd like to deliver it as soon as we can.
QUESTION: Could you explain how the countries where people earn more than $380 a year, how they qualify? Could you explain a little bit how the non-HIPC countries are eligible for the debt relief?
MR. ALLEN: Well, under the terms of the decision, for those countries which have per capita at or below $380, they qualify under the first trust. And any country which qualifies under the HIPC Initiative but has per capita income above $380 is covered by the second trust.
The modalities for funding these two trusts are different. One relies on resources that are owned by the entire membership of the Fund; the other relies on contributed resources. The modalities, though, for delivering the relief are identical. In other words, for a country, say, like Bolivia, which has a per capita income above $380, the terms for getting the relief are the same as for a country with per capita income well below $380. There's no difference in the delivery modalities. All there is is a difference in the funding system.
QUESTION: Does the IMF go ahead with the debt relief irrespective of whether the World Bank and African Development Bank have gone as far? And do you know in percentage terms what the IMF part is of the whole debt proposal that the G-8 put forward?
MR. ALLEN: Well, we've done it. We've gone ahead. I won't say it's on autopilot, but we haven't made it dependent upon action in the other institutions, and a number of the details will be different in the way the other institutions operation.
Do we have the relative numbers?
MS. GUERGUIL: It's difficult because the modalities, particularly in IDA, are not fully defined yet, and the IDA cut-off date is something that is not defined. We don't have firm numbers for the other institutions at this stage and so we can't make a comparison.
QUESTION: Can you give us a rough idea? I mean, is the IMF part like 10 percent or 40 percent or—
MR. ALLEN: In terms of net present value of outstanding debt, it's probably more like 10 percent.
MS. GUERGUIL: Yes, I understand that IDA is considering something around US$37 billion in debt relief. I'm not sure about the African Development Bank.
MR. LIN: In NPV terms, it probably is about 5 percent.
MR. ALLEN: So about 5 percent in net present value terms of the total. The other thing to bear in mind is that since our assistance is much shorter term, we will deliver a higher percentage of our relief over the next few years. The relief that the Bank and the African Development Fund will be giving, since their loans are much longer-term—that relief will be delivered over many, many years. Ours is much more front-loaded.
QUESTION: Just looking ahead in the back of the MDRI Public Information Notice (PIN) here, we're talking about obviously the 18 countries, the two that you've added—Cambodia and Tajikistan—and then there looks like there's ten more that will reach the completion point at some point, the three others that are in arrears. So can you just talk a little bit about where those stand? I mean, I assume the procedure that you just discussed would apply in the same way for those.
MR. ALLEN: Well, as I say, 18 countries have reached the completion point of the HIPC Initiative already, plus—and two more qualify under the MDRI in the Fund. Then ten countries have already reached the decision point, so they're in between the decision point and the completion point under the HIPC Initiative. There are a number of other countries which meet a number of the requirements for the HIPC Initiative, but haven't yet qualified—haven't yet reached the decision point.
We are in the process of closing the list of countries that are eligible for HIPC Initiative, and that will probably involve the addition of some other countries to the list of countries eligible for that initiative. And then there are the three protracted arrears cases.
Now, under the MDRI, it's quite simple that if any of those countries, once they reach the completion point of the HIPC Initiative, they automatically get the debt relief under this initiative. Now, it may take some of these countries some time to qualify under the HIPC Initiative, to reach the completion point. In some countries, the policies are just not such that they've even entered into the process. So this could last some time. But we have funded the operation fully—we've funded the operation so we believe that we can deliver this relief for those countries—for most of these countries, and we have a commitment from other—from members to make up any funding shortfalls for others.
QUESTION: Going back to a broader question, there is some worry about the whole kind of lend-and-forgive cycle. Mark, do you think—I'd just like to hear your views on if you think that the one-off debt relief is going to happen for these countries and, therefore, they need to make the most of it. And what would you recommend policy-wise and otherwise how to make the most of this so that one doesn't get into that cycle?
MR. ALLEN: Well, I think the HIPC Initiative already brought debt down to a much more reasonable level for a whole group of countries, brought them down, in fact, to the average sort of level for low-income countries. This goes further and gives these countries an extra windfall, an extra chance to run more effective government and poverty reduction strategies.
Of course, we need to make sure that we don't contribute to a rebuilding of debt leading to further debt cancellation down the road. This is intended to be a definitive action, whereby we have written off all the debt that was outstanding as of a certain date.
So we will be paying particular attention in our work with all these countries to their borrowing in the future. We have established with the World Bank a framework for looking at debt sustainability in low-income countries, and we will be using this fairly actively to try and ensure that countries don't rebuild unsustainable debt burdens.
Of course, we can't necessarily stop it if others choose to lend and these countries choose to go beyond those limits. But we would want to make sure that it's not our debt or the debt of the other multilateral institutions that creates problems of this sort.
I think there is an important role for development lending in low-income countries. I don't think these countries can be expected or should be required to rely purely on grant financing for the period ahead. I think building up a record of servicing moderate debt is very helpful in the development process, and I think also it allows you to mobilize more funds more effectively for development.
So I think we certainly need to to discuss appropriate policies with member countries to try and ensure that we don't get into another position where we would have to write off the debt.
QUESTION: [inaudible] HIPC Initiative anymore?
MR. ALLEN: No, this builds on the HIPC Initiative. The HIPC Initiative is a multilateral initiative in the sense that it first requires all bilateral creditors to reduce debt using traditional mechanisms, using Naples terms. So official creditors give debt relief under the HIPC Initiative. If there's still more relief needed to be given to get qualified HIPC countries down to the threshold, then bilateral creditors give it and the multilaterals give it. That is the HIPC Initiative. It's an agreement that everyone who is a creditor has to give relief to that country.
This MDRI is different in the sense that we piggyback on the HIPC Initiative, but what we're saying is, in addition, we would give 100 percent relief on qualified claims, as will the IDA and the African Development Fund, to countries when they reach the completion point. So if you like, it's an add-on element, but it piggybacks on the HIPC.
If we decided just to scrap the HIPC and just give relief from the Fund, or the Fund and the World Bank, then there's a whole group of other creditors out there who would still have claims on these countries. HIPC is designed to cover that universe of claims, and it's a multilateral initiative. This, though it's called the Multilateral Debt Relief Initiative, it is not multilateral in that sense, in the sense that it's only the multilaterals who are giving it, not that it is being done multilaterally.
QUESTION: [inaudible].
MR. ALLEN: The answer is yes. We are using resources of our own—which, of course, will not be available for other purposes. But we are using resources of our own, and there are some gaps left. This is the 200 million which will be made up, plus for additional sunset clause HIPC, and for the protracted arrears cases we have an understanding that additional resources will be made available. So the Fund is being made whole for the reduction in the subsidy resources which it needs to continue its PRGF lending operations. Otherwise, we have found the money from our own resources.
MR. ALLEN: Well, the reason for that was that we have to follow the legal requirements of the Fund, and we can use our resources in our special disbursement account for low-income countries, but it has to be uniformly for low-income countries. So we decided to establish this threshold level of $380 under which all members with claims on the Fund would receive relief, and that relief will be given out of our own resources. And this was necessary because we—a very fundamental principle of the Fund's operations is uniformity of treatment. In our view, to give 100 percent relief just to the HIPCs in that group would not have been fair to those other poor countries which had accumulated debt, but not quite as much as the HIPCs. It didn't seem just that they should receive—have no write-off, whereas the HIPCs would receive 100 percent write-off. So we have made the proposal, at least as far as the use of our own resources is concerned, consistent with that principle of uniformity of treatment.
QUESTION: Just a quick follow-up. We have 20 countries initially that would be eligible for the Debt Relief Initiative, and then how many total beyond that?
MR. ALLEN: There's somewhere about 20, 21. It's not quite clear because we haven't finally closed the HIPC list. It's 20 or 21 additional HIPC countries which could receive relief directly under this initiative, plus the three protracted arrears cases where action depends on their getting these longstanding arrears sorted out. So ultimately it could be the current 20 plus another 21 and another three, and for those last three, there will have to be quite a number of extra decisions taken and financing found.
MS. BHATT: Thank you very much for coming. If you have any questions or clarification on numbers, don't hesitate to contact us, and we'll get back to you quickly.
Thank you, Mark.
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