Debt Initiative for the Heavily Indebted Poor Countries (HIPCs)

The Enhanced Initiative for Heavily Indebted Poor Countries-- Review of Implementation

Memorandum to Members of the International Monetary and Financial Committee and Members of the Development Committee on Heavily Indebted Poor Countries Initiative and Poverty Reduction Strategy Papers

Poverty Reduction Strategy Papers (PRSPs)

Poverty Reduction Strategy Papers -- Progress in Implementation

Summing Up by the Chairman
of the IMF Executive Board
Enhanced Initiative for Heavily Indebted Poor Countries (HIPC) and Poverty Reduction Strategy Papers (PRSP)—Progress Reports and Review of Implementation

Executive Board Meeting of September 5, 2000
September 11, 2000

Executive Directors welcomed the HIPC and PRSP progress reports and, in particular, the enhanced cooperation between the Fund and the World Bank, reflected in the draft statement by the Managing Director and the President of the World Bank to the International Monetary and Financial Committee (IMFC) and the Development Committee (DC). They were pleased to note the progress made so far in implementing the HIPC Initiative, which—together with traditional debt relief mechanisms and with further action by bilateral creditors—is already reducing substantially the debt burden of a good number of poor countries.

Directors favored the measures being taken to accelerate the implementation of the enhanced HIPC Initiative and to progress further toward the objective of 20 countries reaching their decision points in 2000. In this regard, some Directors noted that an updated country-by-country status would be useful to provide the international community with an overview of the main factors that stand in the way of some countries reaching their decision point before end-2000.

Directors agreed that an overall track record of three years of Bank- and Fund-supported programs prior to the decision point should in general be maintained, but that this should be interpreted flexibly on a case-by-case basis. Most Directors also agreed that the track record requirements immediately preceding a decision point may need to be applied flexibly, especially for countries that have experienced significant program interruptions. They emphasized, however, that countries need to demonstrate strong commitment to reform programs, particularly in the areas of governance and accountability, and that the link between debt relief and poverty reduction should be clearly maintained. In this regard, Directors stressed the importance of establishing a clear framework for the tracking of public expenditure on poverty reduction. A few Directors favored the maintenance of a track record requirement under Fund-supported programs immediately prior to the decision point, particularly for the most difficult cases, to ensure a prospect for a durable resolution of countries' debt problems.

A number of Directors questioned the extent of floating completion point structural conditionality. They urged the staff to continue to focus floating completion point requirements on a key number of policy actions on poverty reduction, as well as requiring a stable macroeconomic position, and that the country has kept on track with its Fund-supported program.

Directors urged potential HIPC countries that have not yet embarked on IDA- and IMF-supported adjustment programs to do so expeditiously, and thus to begin to establish their eligibility for HIPC debt relief. In this context, most Directors favored that the current end-2000 sunset date for countries to enter into such programs and be eligible for assistance under the Initiative be extended by a further two years to end-2002.

Directors underscored the critical importance of pursuing prudent debt management and of securing adequate concessional financing for the successful implementation of the HIPC Initiative. Several Directors emphasized the importance for calculations of debt relief to take into account the impact of recent adverse terms of trade developments; it was noted that the existing framework is flexible in this regard. Directors agreed that debt relief is only one element of a comprehensive strategy to support poverty reduction in HIPC countries, and noted, in particular, that increased access to industrial country markets is also critical.

Directors welcomed the efforts of the staff to seek participation and contributions from all creditors, including non-Paris Club bilateral creditors. Some Directors noted the financing problems faced by non-Paris Club creditors, especially those that were themselves HIPC countries, and called on the international community for a more innovative and flexible solution for this category of creditors. They expressed their clear expectation that all donors will take the necessary steps to fulfill early pledges of contributions in a timely manner. The issue of Fund financing will be discussed separately on September 13th, 2000.

On PRSPs, Directors welcomed the progress that has been achieved to date. They were encouraged by the favorable response in countries engaged in preparing nationally owned poverty reduction strategy documents and the extent to which countries have drawn on their own prior experience. They noted that, in many cases, the information provided, the degree of participation and the level of political authority involved in the preparation of interim PRSPs was much higher than had been envisaged.

At the same time, Directors acknowledged the challenges facing countries as they move to preparing full PRSPs and attempt to develop well-specified and prioritized programs from what were, in some cases, only broad statements of intent in their interim PRSPs. These challenges include, inter alia, reliance on inadequate poverty data and limited institutional and analytical capacity on the part of both governments and civil society, and the need to ensure that broad-based participation does not undermine the authority of national parliaments and existing democratic processes. Directors therefore welcomed the current or planned involvement of multilateral and bilateral development partners in supporting countries' efforts to upgrade data and to build institutional capacity. They considered that efforts need to be redoubled to ensure that the views of the poor are taken into account in developing poverty reduction strategies. Further analytical work is also needed, particularly with regard to the link between growth and poverty reduction, and Directors noted with approval that the Bank and Fund staff are intensifying their research efforts in this area. They looked forward to the Board review of this work in the near future.

Directors recognized that there is a tension between, on one hand, accelerating debt relief and maintaining the pace of IDA and IMF concessional assistance and, on the other hand, ensuring that HIPC resources and concessional financing are linked to country-owned poverty reduction strategies. While the introduction of interim PRSPs and of interim assistance under the HIPC Initiative has proven to be helpful in this respect, Directors cautioned that this inherent tension will intensify as countries move to full PRSPs. Moreover, while the quality of PRSPs will develop and improve through successive cycles, a wide range should be expected for the first PRSPs. Directors welcomed the World Bank's intention to strengthen the links between PRSPs and IDA assistance through the use of a Poverty Reduction Support Credit.

Directors also recognized that there is a tension between country ownership and the requirements on the part of IDA and the IMF to assess whether the content of individual country strategies provide an adequate basis for the institutions' concessional lending. While concluding that the need to make such judgments is inescapable, they supported the approach outlined in the Board paper for amplifying guidance to staff on the assessment of the core content of poverty reduction strategies, and the participatory process, noting this guidance would enhance transparency without infringing on the principle of country ownership. However, they stressed that such guidance should not be overly prescriptive.

Directors acknowledged that the originally envisaged one-year interval between discussion of an interim PRSP and completion of a full PRSP may be too short. They endorsed the staff's recommendation whereby countries unable to complete a full PRSP within a year of their initial interim PRSP could provide a progress report, accompanied by an updated Joint Staff Assessment, as a basis for obtaining continued access to concessional assistance and, where applicable, interim debt relief. A few Directors, however, favored a fuller update of the PRSP document, including progress being made with regard to the participatory process and where appropriate the planned use of HIPC debt relief resources.

Directors welcomed the background staff paper on the key features of PRGF-supported programs (SM/00/193). They endorsed it as providing useful guidance that will help ensure that macroeconomic policies and other aspects of a country's poverty reduction strategy are effectively integrated, and that PRGF-supported programs are formulated in ways that support increased national ownership. They looked forward to the changes described in the paper becoming increasingly included in new PRGF arrangements. They also welcomed the intention to make the paper publicly available, as a way of clarifying expectations and fostering public debate on the issues.