Heavily Indebted Poor Countries (HIPC) Initiative - Perspectives on … · 1999. 4. 21. · EADB,...

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ANNEX 1. IMPLEMENTATION OF THE INITIATIVE AND RESOURCE FLOWS

A. Implementation

109. Since the launch of the Initiative in the fall of 1996, the eligibility of 12 HIPCs hasbeen reviewed by the Boards of the Bank and Fund.1 Seven have qualified for debt-reliefpackages, and three countriesΧEthiopia, Guinea-Bissau, and MauritaniaΧwould be expectedto qualify based on preliminary discussions. These ten countries are currently expected toreceive assistance totaling US$4.3 billion in net present value (NPV) terms, while thenominal debt-service relief is estimated at about US$8.5 billion over time (see Table 1).

1These are Benin, Bolivia, Burkina Faso, Côte d’Ivoire, Ethiopia, Guyana, Guinea-Bissau, Mali, Mauritania,Mozambique, Senegal, and Uganda.

Table 1. HIPC Initiative: Commitments of Debt Relief (as of March 1999)

Estimated totalAssistance at nominal debt

completion point service relief Date assistanceCountry (US$ mn. In NPV terms) (in US$ mn.) to be released

HIPC debt relief already released

Uganda 347 650 Apr-98Bolivia 448 760 Sep-98

Commitments of HIPC debt relief

Burkina Faso 115 200 Apr-00Guyana 253 500 2nd Quarter 99Cote d'Ivoire 345 800 Mar-01Mozambique 1442 2900 mid-99Mali 128 250 Dec-99

Subtotal 3078 6060 ...

Possible commitments based on Preliminary HIPC Document issued; 1/

Guinea-Bissau 2/ 300 600 ...Ethiopia 2/ 636 1300 ...

Mauritania 271 550 Spring-02

Total 4285 8510

Sources: Fund and Bank Board decisions, HIPC documents, and staff calculations.

1/ Targets based on majority view in preliminary discussions at Bank and Fund Boards; timing and amount of assistancebased on preliminary HIPC documents and subject to change:2/ Finalization of debt relief packages for Ethiopia and Guinea-Bissau has been put on hold due to armed conflicts.

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110. Staff teams from the Bank and Fund are at an advanced stage in their joint work withcountry authorities to finalize preliminary debt sustainability analyses for several new cases,including Guinea and Niger, as well as Honduras and Nicaragua whose economies weredevastated in 1998 by Hurricane Mitch. In addition Guyana’s and Mozambique’scompletion points are expected soon.

Country 1997 1998 19991/ 2/ 3/ Program slippage Armed conflict

Benin 1997 n/c n/cBolivia 1997 n/c n/cBurkina Faso 1997 n/c n/cCameroon 2000 n/c n/cChad 1998 1999 n/c XCongo, Rep. of 1999 2000 n/c X XCote d'Ivoire 1997 1998 n/c XEthiopia 1997 1998 1999 X XGuinea 1999 n/c n/cGuinea-Bissau 1998 n/c 2000 XGuyana 1997 n/c n/cHonduras 2000 2001 1999 5/Madagascar 1999 2000 n/c XMali 4/ 1997 1998 n/cMauritania 1998 1998 1999 XMozambique 4/ 1997 1998 n/cNicaragua 1999 n/c n/cNiger 1999 n/c n/cRwanda 2000 n/c n/cSenegal 1997 1998 n/c XSierra Leone 1998 1999 2000 XTanzania 1999 n/c n/cTogo 1998 n/c 1999 XUganda 1997 n/c n/cVietnam 1998 1999 n/c XYemen 1999 n/c n/cZambia 1999 n/c n/c

Note: n/c means no change from previous assessment.1/ See Heavily Indebted poor Countries (HIPC): Estimated Cost and Burden Sharing Approaches, IDA/SecM97-306and EBS/97/127, July 7, 19972/ See The Initiative for Heavily Indebted poor Countries: Review and Outlook, IDA/SecM98-480 and EBS/98/152,August 25, 1998.3/ Current assessment reflected in the costing exercise which will be published in a supplement.4/ While both Mali and Mozambique reached their decision points later than orginally anticipated, their interim periods wereshortened in recognition of their performance records.5/ Costing to be estimated based on 1999 decision point; this may imply exceptional treatment in light of Hurricane Mitch.

Table 2. Country Cases: Earliest Expected and Realized Decision Points(Countries anticipated in 1997 to have decision points by end-2000)

Reasons for changeAssessment Date

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111. Regarding the pace of implementation, Table 2 presents a comparison of initial andthe latest assessments of the Bank and Fund with respect to earliest expected decision pointdates until the year 2000. In approximately two-thirds of the cases, the decision point asassessed in 1997 remains unchanged. However, in about one-third of the cases the decisionpoint has been pushed back, reflecting program slippages and armed conflicts. The originalassessments and current assessments envisage that 25 countries could reach their decisionpoints by end-2000, by which point 15 countries would be expected to qualify for HIPC debtrelief.2

112. The HIPC Initiative called for the broad participation of all creditors to bring aboutdebt sustainability. As a result, a new level of creditor coordination has evolved.Multilateral creditors, for instance, have met on a twice-annual basis to discuss theirparticipation in debt relief. The African and Inter-American Development Banks, the largestmultilateral creditors after the Bank and IMF, have also participated in several debtsustainability analyses (DSA) missions. On the basis of these DSAs and the HIPCdocuments, close coordination has taken place with all MDBs as well as with bilateralcreditors. Paris Club creditors have regularly discussed the various HIPC cases.

113. Approximately 54 percent of debt relief approved to date will be covered bymultilateral creditors. With 25 percent and 9 percent of total costs, respectively, the WorldBank’s and the IMF’s share of costs under the Initiative are the largest among multilateralcreditors. Other multilaterals account for the remaining 20 percent of the total costs althoughin some country cases regional development banks, such as the IADB in Bolivia and inGuyana, may have the largest costs among multilaterals.

2 Eligibility based on 1998 costing analysis.

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Table 3: Expected Costs for Multilateral Creditors of Early HIPC CasesReviewed to Date1

MultilateralCreditor

HIPC debt reliefIn NPV terms at completion

point(U.S. dollar millions)

PercentageShare amongMultilaterals

(Percent)World Bank 755 46IMF 287 17

AfDB/AfDF 209 13

IDB 203 12

EU/EIB 42 2.5

CAF 39 2.4

CMCF 29 1.8

IFAD 26 1.5

OPEC Fund 20 1.2

BADEA 17 1.0

BCEAO, BOAD, CDB, IsDB, NDF, Fonplata 4 – 10 <1

EADB, ECOWAS Fund <1 <0.1

Total 1,659 100

Source: HIPC Documents and staff estimates.

1/ This includes commitments for Bolivia, Burkina Faso, Côte d’Ivoire, Guyana, Mali, Mozambique, Uganda, and estimated potentialcommitments for Ethiopia, Guinea-Bissau, and Mauritania. Besides the Bank and the Fund, the multilateral institutions which have costs inthe first ten HIPC cases include the African Development Bank/Fund (AfDB/F), the Arab Bank for Economic Development in Africa(BADEA); the Banque Centrale des Etats d’Afrique de l’Ouest (BCEAO), the Caribbean Development Bank (CDB), the CaricomMultilateral Clearing Facility (CMCF), the Central American Bank for Economic Integration (CABEI), la Corporación Andina de Fomento(CAF), the East Africa Development Bank (EADB) the Economic Community of West African States-Fund for Cooperation Compensationand Development (ECOWAS Fund), the European Union (EU) and the European Investment Bank (EIB), the Fund for the FinancialDevelopment of the River Plate Basin (FONPLATA), the Inter-American Development Bank (IDB), the International Fund for AgriculturalDevelopment (IFAD), the Islamic Development Bank (IsDB), the Nordic Development Fund (NDF), the Organization of PetroleumExporting Countries-Fund for International Development (OPEC Fund), and the West African Development Bank (BOAD).

114. The Bank and Fund are committed to meeting their full share of the costs under thecurrent HIPC framework. The Bank has been meeting the bulk of its share of costs by wayof IBRD net income transfers to the HIPC Trust Fund. IBRD’s Governors have authorizedcumulative net income transfers in the amount of US$850 million to date. In addition, asignificant amount of assistance has been provided by way of grant funding (in lieu of creditfunding) of a portion of IDA’s lending program to eligible HIPCs. For the first ten cases(under the current HIPC framework), it is expected that up to 30 percent of the Bank share ofdebt relief will be provided by way of grant funding of a portion of IDA’s lending program.Similarly, the IMF has set up the ESAF-HIPC Trust which has received bilateralcontributions so far from nine countries of approximately US$50 million. In addition, theIMF’s Executive Board has agreed to make contributions to the ESAF-HIPC Trust from the

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Fund’s ESAF Trust Reserve Account, totaling around US$120 million for FYs 1998 and1999, and has authorized the temporary3 transfer of up to US$350 million from the ESAFTrust Reserve Account to help meet the Fund’s commitments under the HIPC Initiative.

115. All other multilateral creditors have also agreed in principle to participate in theHIPC Initiative. However, while some have committed to financing their share of the cost,others depend (and will continue to depend) on the support of their shareholders, and on thegenerosity of bilateral donors (through the HIPC Trust Fund).

116. While the expected share of the other multilateral creditors for the early cases isexpected to be approximately 20 percent of the total costs, assuring their participation hasrequired considerable effort. Although individual multilateral creditors may have smallcosts— several with less than 1 percent of the total cost— the burden-sharing principles of theHIPC Initiative require that all creditors participate. For many of the smaller multilateralcreditors, this has proven difficult, as the approval process by their respective Boards is oftenelaborate and time consuming. The debt relief to be provided by these creditors can have amajor impact on their balance sheets as they often have a shortage of concessional resources,limiting their modalities and capabilities to deliver debt relief. As a result, activeconsultations have been ongoing with Bank and Fund staff and potential bilateral donors todetermine the HIPC debt relief that individual institutions could cover through their ownresources, while maintaining their financial integrity. In addition to their own resourcesAfrican Development Bank, CMCF, CAF, and Fonplata will be benefiting from financialsupport by the HIPC Trust Fund to deliver their full share of the HIPC Initiative debt relief.Bilateral contributions and pledges from 19 countries bring the total contributions thus far toabout US$440 million (Table 4).4

117. The experience thus far with cases having reached the decision point hasdemonstrated the commitment of creditors to participate, and the willingness of donors toprovide the necessary financing, to allow all creditors to participate fully. Financing for thisInitiative has evolved as new countries are considered: most creditors have agreed toparticipate fully, while not considering it necessary to allocate up-front the entire cost of theInitiative. Rather, a case-by-case approach has been followed with some contingencyplanning for the likely cases during the next calendar year. Experience has shown that thisapproach has secured, in principle, financing under the HIPC for all countries that havereached their decision point.

3 These authorized transfers are meant to serve as temporary financing to help meet the Fund’s commitmentsfor special ESAF operations under the HIPC Initiative and are not counted toward securing the overall financingof the ESAF and HIPC Initiatives. It is expected that the Special Disbursement account (SDA) of the IMF willbe replenished by any such transfers.4 In the case of Mozambique, where an 80 percent reduction of eligible debt by the Paris Club was notsufficient to provide proportional burden-sharing, exceptional measures were taken by bilateral creditors, withsome creditors agreeing to go beyond Lyon terms, and additional assistance was committed by the World Bankand IMF on an exceptional basis.

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118. Under traditional debt relief mechanisms, Paris Club creditors provide eligiblecountries with a concessional rescheduling under Naples Terms, which reduces eligible debtby up to 67 percent in NPV terms. The Paris Club Secretariat has estimated that total debtrelief provided under Toronto, London, and Naples terms was US$19 billion in NPV termsover the last ten years.

119. In the context of the HIPC Initiative, the Paris Club agreed to provide up to80 percent NPV reduction under Lyon terms. The country cases for which there aredecisions on HIPC Initiative assistance thus far will cost the Paris Club as a whole US$1.15billion in NPV terms. This is its share of the costs under the HIPC Initiative, and is additionalto the costs of traditional mechanisms (a 67 percent NPV stock-of-debt operation). The ParisClub is currently the only creditor group which provides interim debt-service relief to HIPCs(that have not already had a Naples terms stock operation), by increasing the NPV reductionin the flow reschedulings from 67 to 80 percent.

Table 4. Bilateral Support to the HIPC Trust Fund

(US$ million as of February 28, 1999)

Country Contributions 1/ Pledges Total

Australia 5 5Belgium 4 8 12Canada 26 26Denmark 26 26France 21 21Finland 7 16Germany 2/

Greece 1 1Ireland 16 16Japan 10 10Luxembourg 1 1Netherlands 61 61Norway 41 41Portugal 15 15Spain 15 15Sweden 29 29Switzerland 28 28U.K. 21 50 71US 3/ 50 50

Total 442

Source: World Bank staff estimates1/ Includes proposed contributions through reallocation of ISF resources(Interest Subsidy Fund).2/ The German government announced that it will make a contribution in1999; the exact amount has yet to be announced.3/ The US Government has included in its budget proposal an allocationof US$50 million; the exact amount has yet to be announced.

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120. Participation of non-Paris Club creditors in the Initiative relies on the traditionalmechanism of bilateral negotiations with the debtor along terms at least as concessional asthose obtained from the Paris Club. Participation has been slower and less broad amongnon-Paris Club creditors than amongst other creditors for several reasons. First, there is nooverarching coordination mechanism as exists for the Paris Club and the MDBs. Secondly,effective communication between the debtor and the non-Paris Club creditor is sometimeslacking. Finally, some non-Paris Club creditors may feel less bound to participate, as theyare less involved in the decision-making process under the Initiative.

121. Debtor countries are frequently left with no option but to run up significant arrears tonon-Paris Club creditors as their requests for comparable treatment are not accepted. This isone factor which contributes to significant arrears. According to the Debtor ReportingSystem (DRS) of the World Bank, as of end-1997 about 80 percent of all nonconcessionaland 50 percent of concessional bilateral debt owed to non-Paris Club creditors by all HIPCswas in arrears. This suggests that coordination and communication between the debtor andnon-Paris Club creditors needs to be strengthened. Moreover, non-Paris Club creditors anddebtors may benefit from more guidance as to how the comparability clause could be appliedand constructively negotiated.

B. Resource Flows

122. The HIPC Initiative was designed primarily to reduce debt stocks to sustainablelevels, while ensuring that debt service in relation to exports was not excessive. The cash-flow impact of reducing debt service is usually spread over a number of years. For the firstseven countries to reach the decision point, estimated scheduled debt service payments afterreceiving HIPC assistance are not dramatically different from the actual debt service paid forthe period prior to the decision point, although the HIPC Initiative does clearly reduce debtservice below scheduled amounts due after traditional debt-relief mechanisms (Chart 1).While Guyana's debt service after the completion point shows a noticeable decline, theimpact is less substantial for the other six countries. The U.S. dollar amounts of debt serviceowed by Burkina Faso and Mali are expected to increase. In absolute terms the Initiative maynot be significantly reducing debt service from current levels paid. However, in the contextof successful reform programs a country’s revenue base should grow over time, therebygenerating more fiscal space. Similarly, when expressed as a fraction of projected exports,all seven countries expected to show an improvement over the years following thecompletion point, and thus an easing of foreign exchange constraints in paying debt service.

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Debt service paid through 1998 and due after HIPC assistance (left scale) Debt service paid or due after HIPC assistanceDebt service due after traditional debt relief mechanisms in percent of exports of goods and services

(right scale)

Source: Country authorities and staff estimates. DP = Decision Point CP = Completion Point

Chart 1: Debt Service Paid and Projected (after HIPC Assistance) for Countries Which Have Reached the Decision PointIn millions of U.S. dollars and percent of exports; 1993 - 2005

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123. A number of factors contribute to the limited impact of HIPC assistance on actualdebt service flows compared with past levels. First, as with any scheme based on deliveringa fixed standard of debt sustainability, some countries require less assistance to reach thetarget level (Côte d'Ivoire and Mali are examples). Second, the cash-flow assistanceprovided by Paris Club creditors in a stock operation of a given concessionality level (say 80percent) is lower than that provided in a flow operation of equal concessionality, sinceinterest falling due is treated in the flow rescheduling. Thus, there may be an increase indebt-service payments to bilateral creditors after the completion point.5 Third, many HIPCshave run arrears prior to the decision point, primarily to Russia and other Paris Club and non-Paris Club bilateral creditors. The HIPC Initiative is based on a projected regularization ofsuch external debt so that even after HIPC Initiative relief there would be some resumptionof payments.

5 In part, the projected debt-service profiles reflect the graduated repayment schedules under concessional ParisClub reschedulings where repayments gradually increase after the grace period taking into account the assumedincreasing payments capacity of countries over time.

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C. Debt Relief and Resource Flows

124. Debt service and debt relief are only a partial element of the total resource flows toHIPCs. Over the last three decades, donors and creditors have provided funds to HIPCs onprogressively more concessional terms, including grants. Over the past 30 years, thecomposition of the debt of HIPCs has become increasingly multilateral.

125. Bilateral assistance has increasingly taken the form of grants, while large stocks ofODA debt have been forgiven, following the 1978 UNCTAD resolution to cancel or forgiveODA debts. A number of donors have already adopted this practice. For instance, manycreditor countries have written off virtually all claims on HIPC countries, and others havewritten off substantial amounts. Between 1978 and 1997, an estimated US$18 billion inODA claims have been forgiven by bilateral creditors based on DRS data.

126. Bilateral creditors have also provided substantial debt relief in the context of ParisClub agreements and the HIPC Initiative as noted above. Most HIPCs have come to a finalsettlement of debt to commercial creditors through buy-back operations at large discounts.This has been supported by the international community through the help of the IDA DebtReduction Facility, which provided grant resources for such buy-backs to HIPCs to cancel$6 billion in debt since 1991. Also, a number of HIPCs (e.g., Côte d’Ivoire in 1997) have

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Chart 2. Shares of Concessional Debt and Multilateral Debt(in percent of public and publicly guaranteed debt)

Source: World Bank, Debtor Reporting System

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concluded agreements on debt and debt-service reduction operations with commercial bankcreditors that involved significant debt reduction elements.

127. Multilateral institutions have, by their mandates, long-term relationships withborrowing countries. Over time, they have increased the concessionality of the resourcesmade available to HIPCs. IBRD lending has ceased in those HIPCs where it had occurred,replaced by IDA resources, and Fund resources also have been provided on a concessionalbasis through the SAF and ESAF facilities, begun in 1986.

128. There has been an overall trend towards tightened aid budgets and aid fatigue,illustrated by the declining share of official development assistance to the developingcountries in relation to GNP of donor countries. This aid ratio fell to 0.22 percent of theGNP of the donor countries that are members of the DAC in 1997, from an average of 0.34percent in the 1980s and the United Nations targets of 0.7 percent of GNP. Reflecting thesetrends, net transfers to HIPCs, which were increasing until the early 1990s are now declining(Chart 5 and Table 5). At the same time, grants have increased in importance in the mix ofaid resources. Since 1990, debt-service payments made have remained at around $8 billionper year, but new disbursements of loans and grants have fallen.

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Chart 3. Use of Fund Credit for HIPC Countries(In percent of total, 1970 - 1998)

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Chart 4. Composition of World Bank Debt for HIPC Countries(In percent of World Bank Debt, 1970-1997)

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Chart 5. Aggregate Net Transfers to HIPCs, 1970 - 1997(in US$ billion)

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Grants Net transfers MemorandumDisburse- Principal Net debt Interest Net debt (excl. technical on loans item; Flow

ments repayments flows payments transfer 1/ cooperation) and grants Reschedulings1 2 3 = 1 - 2 4 5 = 3 - 4 6 7 = 5 + 6 8

1970 1.3 0.4 0.9 0.2 0.7 0.3 1.0 0.0

1980 11.5 3.0 8.5 2.1 6.3 3.1 9.4 0.1

1990 10.6 4.6 6.0 2.6 3.4 10.1 13.5 4.8

1991 8.7 4.3 4.4 2.8 1.6 10.7 12.3 2.5

1992 9.2 3.5 5.7 2.1 3.6 9.2 12.8 3.3

1993 8.3 3.5 4.8 2.2 2.6 8.3 10.9 1.6

1994 8.3 4.4 3.9 2.6 1.3 10.0 11.3 4.2

1995 10.5 6.7 3.7 2.9 0.9 9.2 10.0 2.6

1996 8.2 5.5 2.8 2.8 -0.1 8.8 8.7 5.0

1997 8.0 5.4 2.6 2.8 -0.2 7.8 7.6 5.9Total 1990-97 71.8 38.0 33.8 20.7 13.1 74.0 87.1 29.8

Source: World Bank, Global Development Finance, 1999.1/ Net transfers on long-term debt are net flows on long-term debt minus interest on long-term debt. "Net debt transfers" shouldnot be confused with aggregate net transfers, which are: net aggregate resource flows - interest payments - profit remittances onforeign direct investment.

Long-term debt flows (incl. IMF)

Table 5. Financial assistance to HIPCs, 1970-1997(in US$ billion)

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Annex 2: 1999 HIPC Review - Phase I

Consultation Meetings

Place Date Host/Sponsoring Organization

1. Maputo, Mozambique Feb. 26, 1999 World Bank Field Office

2. Bonn, Germany March 3, 1999 Ministry of Economic Cooperation

3. Lomé, Togo March 4, 1999 African Network for Environmental andEconomic Justice (ANEEJ)/Friends of the Earth, Togo

4. Oslo, Norway March 4, 1999 Ministry of Foreign Affairs

5. London, UK March 5, 1999 Commonwealth Secretariat

6. Washington DC, USA March 11, 1999 Overseas Development Council

7. London, UK March 18, 1999 Jubilee 2000

8. Tegucigalpa, Honduras March 23, 1999 Central American Bank for EconomicDevelopment (CABEI)

Annex 3: Selected Comments on Debt Relief for Poor Countriesby NGOs and Religious Groups

(Based on documentation received as part of the 1999 HIPC Review)

Organization Rationale/Objective Depth of Relief Timing of Relief PerformanceCriteria/Linkage for Relief

Other

Anglican Church(Lambeth Conference) 1

Substantial debt relief,including cancellation ofunpayable debts of thepoorest nations is anecessary, while notsufficient precondition forpoverty reduction.

Debt repayments should be setat levels which prioritize basichuman development needsover the demands of creditors.

Debt reduction for thepoorest nations should bespeeded up so they maybenefit by the year 2000.

Ensure, through publicmonitoring and evaluation, thatadditional resources generatedfrom debt relief are allocated toprojects that benefit the poor.

Catholic Fund forOverseas Development(CAFOD) 2

Key issue is to definemeasures of debtsustainability which areappropriate for the poorestcountries, and measuresthat address both thevulnerability of theireconomies to externalshocks and ones which takeinto account the low levelsof human development.

A human developmentapproach to debt sustainabilitywould be concerned withassessing the fiscallysustainable level of debt. Theproposed methodology,termed the feasible netrevenue approach, focuses onthe capacity of HIPCgovernments to raise revenuewithout increasing poverty orcompromising futureprospects for future economicdevelopment. Debt servicingcapacity is measured aftertaking into account minimumlevels of spending to meettargets for the most basic levelof human development. Thisapproach would provide a toolto achieve coherence betweendebt policy and broaderdevelopment goals, includingthe OECD DevelopmentAssistance Committee's targetof halving poverty by the year2015.

There is an urgency in theneed for debt relief that isnot reflected in the longdelays built into the HIPCInitiative time frame.

No performance criteriarequired. Just a calculation:• For each country, subtract

amount of income belowthe absolute poverty linefrom taxable income base.

• Adjusted income isdivided by four to arrive atmaximum taxationrevenue.

• Resources required forbasic health and primaryeducation also subtractedfrom this revenue.

• Only 20 percent of this netfeasible income can beused for debt service.

The feasible net revenueapproach would call formuch deeper debt relief inthe poorest countries. Atleast 10 countries wouldqualify for 100% debtcancellation.

1 See "Resolutions approved by the Lambeth Conference (1998) - Resolution 1.15: International Debt and Economic Justice."2 See CAFOD policy paper “A Human Development Approach to Debt Relief for the World’s Poor” prepared by H. Northover, K. Joyner, and D. Woodward (1998). CAFOD is the official aidand development agency of the Catholic Church of England and Wales. It works through partner organizations in 75 countries to promote human development.

Annex 3: Selected Comments on Debt Relief for Poor Countriesby NGOs and Religious Organizations



Other

Catholic Relief ServicesUS Catholic ConferenceBread for the WorldNational Council ofChurchesOxfam AmericaEpiscopal ChurchPresbyterian ChurchUSAUnited Church of Christ3

Concern with the humanaspects of the debt problem- its impact on the poor andvulnerable. Advocate debtsustainability criteria basedon human development, notexport earnings. Fiscalcriteria taking account ofhealth, education and otherexpenditures necessary forsustainable developmentand poverty reductionshould be the primarydeterminant of HIPCeligibility criteria for allcountries.

The HIPC Initiative shouldprovide debt relief sufficientto reduce the NPV of debt toless than 150% of the value ofannual exports, and the annualdebt service to not more than10% of annual fiscal revenue.

The 280% target for NPV ofdebt to exports is arbitrary andshould be replaced by criteriabased on debt service to fiscalrevenue.

Required track record ofsatisfactory performanceshould be limited to 3years. Deeper and fasterdebt relief for countriesdemonstrating sustainedcommitment to povertyalleviation or countrieshaving sustained majornatural disaster.

Lack of 3-year track recordshould not delay debtreduction for post conflictcountries.

Policy conditionality shouldinclude effective measures forpoverty reduction andenvironmental protection. Debtrelief would be conditioned onpreparation of a Plan of Actionfor Human Development.Savings from debt reductionwould be deposited into aHuman Development Fundmonitored by civil society.

Lobbying of members ofthe US Congress byCatholic Relief Servicesand the US CatholicConference led to theintroduction of a bill tomodify and expand theHIPC Initiative, along thelines described here, andensure commensuratefinancing to the HIPCTrust Fund.

Christian Aid 4 Debt relief should not existin isolation from the widerdevelopment agenda. Debtsustainability targets shouldbe linked closely to theattainment of the OECDDAC development targetsfor the 21st century. At thevery least, poverty andmeasurements of povertyshould be included asvulnerability indicators.

The debt sustainability ratiosshould be re-examined(including the ratio of debt tofiscal revenue) and exportgrowth projections should bemore realistic. Governmentsand civil society to cost howmuch debt relief is needed tomeet DAC humandevelopment targets.

Generally, considersimplifying the HIPCprocess, with a view tospeeding it up.

Remove link between debtrelief and ESAF track record.Consider alternative approachwith simpler and more realisticmacro-economic indicators.

Place more emphasis ondeveloping debtmanagement capacity.

Bilateral creditors shouldprovide sound andsustainable flows ofdevelopment finance.Export credit agencies, inparticular, should behavemore responsibly.

3 See Catholic Relief Services/ U.S. Catholic Conference “Submission for the 1999 HIPC Review” (March 16, 1999) and H.R.1095, "Debt Relief for Poverty Reduction Act of 1999”,introduced in the U. S. House of Representatives in March 1999, by Representative Jim Leach and others. Catholic Relief Services are the official overseas relief and development agency of theU.S. Catholic Church, working in close cooperation with the U. S. Catholic conference. These and the other groups listed are all part of the Jubilee 2000 movement. Other organizations whichsent in submissions supporting the views of CIDSE/Caritas include: Austrian Episcopal Conference for International Development Mission, Global Mission of the Episcopal Diocese ofMassachusetts, Jesuits for Debt Relief and Development, Maryknoll Office for Global Concern. A contribution in Spanish was also sent by Catholic Relief Services Honduras.4 See Christian Aid, "Forever in your debt" (May 1998) and “The Fundamental Review of the HIPC Initiative” (January 1999). Christian Aid is the official relief and development agency of 40British and Irish Churches and works in almost 60 countries worldwide.




Other

CIDSE/CaritasInternationalis 5

Make poverty reductioncentral to HIPC.

Restructure HIPC tointegrate goal to reducepoverty by half by 2015.

Human developmentapproach: A governmentshould first commit financialresources to meet the globalpoverty reduction targetsbefore committing resourcesto repaying debt. Financialresources needed for basicneeds should be firstsubtracted from the country’srevenue base and no more thatone-fifth of the remainingrevenue should be allocated todebt payments.

Need for quicker debtrelief.

In view of the widespreadpoverty, the internationalcommunity faces aprofound moral challenge.The HIPC Initiative shouldbe transformed in ways thatheed the Biblical call toproclaim jubilee by the year2000.

Opposed to unconditional debtrelief.Need to ensure that savingsfrom debt relief are usedresponsibly.But opposition to rigid six-yeartrack record and link to ESAFprograms.

Support for programs that arepoverty focused, have beenprepared in a transparent andparticipatory manner.

A transformed HIPC willbe more costly butcreditors should summonthe political will necessaryto commit substantial newresources to deeper debtrelief. Such resourcesshould be additional toaid.

Create procedures tobroaden participation indecision-making.

EURODAD (EuropeanNetwork on Debt andDevelopment) 6

The HIPCs face extremepoverty. The concept ofdebt sustainability shouldbe broadened to take intoaccount resource needs forhuman development.

The emphasis on debt stockfigures is meaninglesswhen only a fraction of thedebt is actually beingserviced. From a resourcesperspectives, debt servicingis what counts. HIPC so farhas resembled a glorifiedaccounting exercise, withlittle impact on the level ofresources available foressential investments.

Following the frameworkdeveloped by CAFOD,EURODAD advocates the useof a maximum affordable debtservice approach to determinedebt relief. Factor inmaximum feasible taxrevenues, poverty level,essential spending needs, andallocate to debt service up to30% of amount available fornon-essential spending. Thebenchmark for the ratio ofdebt service to exports wouldbe 5% (actual ratios would bedetermined on a case-by-casebasis).

3+3 years time frame of theHIPC Initiative (dictated byESAF link) is cumbersomeand the period is too long.As soon as a countryqualifies for debt reduction,it should receive immediatereduction in its debtservice.

Debt relief should be de-linkedfrom ESAF compliance.Instead, link use of savingsfrom debt relief to investmentin human development.

The HIPC Initiative, in itspresent form, can onlymanage the debt crisis inthe HIPCs, not solve it.Need to break the cycle ofdebt dependency, wherenew money goes toservice old debt.Civil society andparliaments shouldmonitor new borrowing.There should be no furtherlending for balance-of-payments purposes.Non-revenue generatingprojects in the socialsectors should be fundedby grants.

5 See CIDSE and Caritas Internationalis: “Putting Life Before Debt”, 1998 and “Proclaim Jubilee: An Urgent Appeal for Debt Relief for the World’s Poor by the year 2000”(1999). CIDSE(International Cooperation for development and Solidarity) is a network of 16 Catholic development organizations located in Europe, North America, and New Zealand. Caritas Internationalis isa network of 154 national Catholic relief, development, and social service organizations in 198 states.6 See "1999 HIPC Initiative Review Consultative Process: Phase One" (March 15, 1999) and "EURODAD Debt Update - 26 February 1999".




Other

Modify fiscal/open economycriteria for HIPC eligibility:• remove the export/GDP

requirement;• lower the fiscal

revenue/GDPrequirement to 10-15%(or stipulate that fiscalrevenue/GDP ratio mustnot drop from currentlevels);

• lower the debt/fiscalrevenue target from280% to 200%; or,better still:

• use a debt service/fiscalrevenue indicator, basedon "affordable debtservice approach".

Debt relief should begenuinely additional toaid, not a substitute for it.

The NPV concept is notan accurate measure ofdebt overhang and debtservice capacity.Applying market-baseddiscount rates toconcessional debts distortsthe true burden of debt,and changes in thediscount rate result inchanges in the NPV ofdebt which are not relatedto changes in the countriessituation and debt servicecapacity.

Friends of the Earth 7 The HIPC Initiativeprovides too little debtrelief, too late, and for toofew countries.

The definition of debtsustainability on the basis ofexport earnings is a majorflaw. Ecological and socialsustainability must be takeninto account. A humandevelopment approach wouldput poverty reduction targetsahead of repaying debts.

The Initiative should be de-linked from the ESAF.Conditionality should be toestablish some participatorymechanism to ensure that debtrelief proceeds go to povertyreduction and the environment.

Funding for debt reliefshould be additional, notin place of, aid resources.Debt sustainabilityanalyses should be carriedout more openly.The Paris Club shouldimprove the openness ofits deliberations.

7 See "Comments to the World Bank and International Monetary Fund on the Heavily Indebted Poor Countries (HIPC) Initiative Review (March 1999). Friends of the Earth is a member of theJubilee 2000 campaign.




Other

Halifax Initiative 8 The problem with HIPC isthat it is based on reformswhich are not owned by thedebtor countries.The objective is to improveHIPC by strengtheningownership.An AutonomousDevelopment Programbuilds on HIPC, andfocuses on placing HIPCwithin an overalldevelopment agenda.Specifically, by enhancingownership by the countryinvolved.

Any IDA country could applyfor an immediate reduction inits debt service requirements,following the design andpresentation of acomprehensive developmentand poverty reduction plan byits government.Prepared by the governmentor designates. Debt servicetargets would then be set incontext of the developmentstrategy.Short term debt service shouldbe rescheduled while the planis put in place, untilcomprehensive debtreductions can be achieved.

Reductions in debt serviceimmediate. Since reliefwould not wait for fullDSA and HIPCnegotiations, the only delayshould come from a failureof country to provide adevelopment strategy.

Shift criteria from balance ofpayments to quality of thedevelopment plan.

Proposed approach aims atenhancing ownership ofHIPC process, and oflonger term reforms.

Significant developmentassistance would continueto be required, but debtstock reductions would bespread out over longertime.

Jubilee 2000 9 Debt is unjust and immoral.Use 2000, year of theJubilee, as called for in oldtestament Book ofLeviticus, to call theworld’s rich creditors tocancel all unpayable debts.

Cancel all unpayable debt ofthe world’s poorest countries.

By the year 2000. Cancellation should bedone in a transparentmanner. The Director ofJubilee 2000 UK hasposited an idea for aninternational bankruptcyfacility which wouldadminister this process.

8 See “Submission to the 1999 HIPC Review” (March 1999). See also "Going Beyond the HIPC Initiative: Another Pathway to Achieving Freedom from the Burden of Debt" (July 1998) and“The failure of the HIPC Initiative debt relief program--who gets left out” (April 1998). The Halifax Initiative is an undertaking of the Canadian Coalition for Global Economic Democracy.9 See "Debt Round Table on Jubilee 2000 Goals" (March 18, 1999). Jubilee 2000 has chapters in more than 100 countries and is the catalyst for global concern about debt and lobbying for debtreduction. Apart from the groups mentioned above, other organizations which submitted papers supporting the views of Jubilee 2000 include: Action for Southern Afrika, Danish North/SouthCoalition and Jubilee 2000 Denmark, and Jubilee 2000 Zambia.




Other

Jubilee 2000 --Afrika Campaign10

The debts are simplyunpayable, and Africa willcontinue to be in economicbondage and unable todevelop unless the debtburden is eliminated.

The debt should be cancelled. Immediately. Debt cancellation should beunconditional.Resources freed by debt reliefshould be re-channelled intosocial services, in particulareducation, health, housing.

Good governance,accountability andresponsibility should bepre-conditions for newlending. Civil societyshould be consulted.

Jubilee 2000 --Canadian EcumenicalCoalition 11

Scope of initiative is toonarrow. Definition of debtsustainability ismechanistic, devoid ofsocial or environmentalconcerns. More countriesshould be eligible.

A better approach wouldbegin with integral,ecologically sustainabledevelopment as its goal, andconsider how much surplusmight be available forservicing foreign debts afterpriority development needsare met.

6-year time period isclearly unacceptable.However, real issue is notlength of time butconditionality

The requirement to implementstructural adjustment programsis the most objectionable aspectof HIPC Initiative. Theseprograms involve unacceptablelevels of austerity and aunilateral imposition ofpolicies on debtor countries bycreditors. Civil society must beconsulted in the design andmonitoring of policies and theuse of the resources released.

Jubilee 2000 --Japan 12

Complete cancellation of allpublic debt owed by HIPCs toJapanese government. Japanshould also arrange forcancellation of private debt.

More generally, Japan shouldseek cancellation of HIPCpublic debt to both bilateraland multilateral officialcreditors.

Cancellation should bebefore the year 2000.

De-link debt relief from ESAF.Replace with socialconditionality, includingtransparency and theobligation to use savings fromdebt relief for socialdevelopment. Socialconditionality should bedesigned and monitored bycivil society.

Aid should take the formof grants, not loans,especially for socialprojects.

10 See "Accra Declaration" (April 19, 1998).11 See "Canadian Ecumenical Jubilee Initiative Submission to 1999 HIPC Review-Phase One" (March 11, 1999).12 See "Position paper of Jubilee 2000 Japan on Writing-off of Debt owned by Japan" (March 1999).




Other

Jubilee 2000 --Latin-American andCaribbean Platform 13

The debt is impossible torepay, illegitimate andimmoral.

There should be a one-offcancellation of all HIPC debt.

For future borrowing,external debt servicepayments should not exceed3% of the budget.

The debt cancellationshould take place in theyear 2000.

Ensure that resources freed bydebt relief are invested inhuman development andprotection of the environment.The active participation of allgroups in society in the design,implementation, follow-up andevaluation of the entire processmust be guaranteed.

Debt cancellation shouldtake place along the linesof bankruptcyproceedings. A tribunal ofsome sort may allowpartial cancellation whenappropriate.

Mozambican DebtGroup 14

Based on the experience ofMozambique, this Groupfinds the HIPC Initiativeinsufficient. A key issue isthe narrow definition ofdebt sustainability, whichfails to take into accountlong-term resource gapsand chronic aid dependencyof HIPCs and leaves themwith unsustainable debtpayments which undulycompromise growth.

Writing off debt stocks whichare not being serviced iseconomically meaningless.Debt relief must providereduction in actual debtservice payments. The debtsustainability thresholdsshould be reduced and madeflexible, with both fiscal andexport approaches used in theDSA of every HIPC.Also, it is inconsistent toexclude private debt servicefrom the target ratios for debtservice to exports.

The ESAF should be de-linkedfrom the HIPC Initiative.

Calculation of the cost ofthe Initiative should bemade on the basis ofpayable debts, rather thanbook values.

13 See "Tegucigalpa Declaration" (January 27, 1999).14 See "The need to Reform the Current HIPC Initiative" (March 1999). The Mozambican Debt Group is a Coalition of NGOs, religious groups, unions, cooperative associations andindividuals, working together to promote discussions and advocate solutions to the problems associated with Mozambique's debt crisis and economic reform process.




Other

Oxfam 15 To strengthen the linkbetween debt relief andpoverty reduction byestablishing an incentive(not conditionality) toreward countries whichmake crediblecommitments to povertyreduction with faster,deeper debt reduction(Human DevelopmentWindow proposal). Thiscommitment would bemeasured by the percentageof debt service savingsinvested in social sector,based on OECD DACtargets. The window wouldbe open only togovernments willing tocommit 70-100 percent ofsavings on debt intoidentified poverty reductioninitiatives over five years.

For countries eligible for theHuman DevelopmentWindow, debt sustainabilitythresholds would be loweredto:• --10-15 percent for debt

servicing;• --100-150 percent for

NPV debt/exports; and150-170 percent for NPVdebt/revenue.

Oxfam also proposes a 10-15% ceiling on the share ofgovernment revenue to beallocated to debt service.

For countries pursuingHuman DevelopmentWindow, an acceleration ofOxfam’s standing call for areduction from six years tothree in the time frame forimplementation. Debtrelief would then bedelivered within 1-2 years.

Important to remember that theHuman Development Windowis not conditionality. It wouldprovide additional benefits tocountries which make acredible commitment to targetfunds released from debtservice toward meeting DACtargets but would not excludeother countries from access toHIPC on less preferentialterms.

Debtors pursuing the HumanDevelopment Windowapproach would be required todevelop a Poverty actionFramework and a NationalPoverty Fund, subject toindependent audit.

Oxfam has proposed to use theHuman Development Windowto finance education in HIPCs.

To ensure transparency,debtor governments wouldbe required to develop aPoverty ActionFramework, submittedbefore Decision Point, andbe designed in cooperationwith major donors, andcivil society.

Religious WorkingGroup on the WorldBank and IMF 16

Concern for the poor andthe excluded provide thebasis for moral case fordebt relief.

Attempts to identify targetsfor debt sustainability miss themark. Debts of countriesuable to meet the basic needsof their people, and debtswhich are illegitimate andimmoral due to circonstancesunder which they werecontracted, should not berepaid.

Current form of structuraladjustment conditionalityshould be abandoned becauseof the unjust burden they placeon the poor.Any conditions attached to debtrelief must involve openness,flexibility, civil societyparticipation.

15 See Oxfam International , "Debt Relief and Poverty Reduction: Strengthening the Linkage" (September 1998), "Submission to the HIPC Review"(March 1999), and “Education Now: Breakthe Cycle of Poverty” (March 1999). Oxfam International is a network of eleven aid agencies that work in 120 countries throughout the developing world.




Other

Social Forum on ForeignDebt and Development ofHonduras (FOSDEH) 17

Similar to Jubilee 2000. FOSDEH proposes a 50%reduction in the bilateral andmultilateral debt of Honduras,and a 70% reduction in otherdebts. Debt service paymentsshould not exceed 5% ofexports.

By end-1999 for officialdebt and mid-2000 forremaining debts.

Resources freed by debt reliefwould be put in a Fund forHuman Development, whichwould give priority to socialinvestment, with effectiveparticipation by civil society inthe operation and monitoring ofthe Fund.

Vatican 18 Based on the moral case fordebt relief. Poor nations"… are oppressed by a debtso huge that repayment ispractically impossible…Such abuses [of power] aresinful and unjust." TheVatican calls for "a newculture of solidarity andcooperation… ".

Pope John Paul II has calledfor “… a substantial, if notoutright cancellation, of theinternational debt whichseriously threatens the futureof many nations”.

Immediate and vigorouseffort is needed to ensurethat by the year 2000 thegreatest possible number ofcountries "will be able toextricate themselves from anow intolerable situation".

16 See statement on "The HIPC Review Process", endorsed and signed by 230 persons representing Catholic and protestant groups in the U.S. and overseas.17 See “Propuesta del Foro Social de Deuda Externa y Desarrollo de Honduras en el Marco del Grupo Latinoamericano de Jubileo 2000” (February 1999). FOSDEH is a network linking morethan 120 Honduran organizations (including NGOs, trade unions, farmers and other trade associations, churches, etc..) as well as other groups representing civil society in Latim America andEurope.18 See Apostolic Letter "Tertio Millenio Adveniente" (1994) and Papal "Bull of Indiction of the Great Jubilee of the Year 2000".

Annex 4: Selected Comments on Debt Relief for Poor Countriesby Creditor Governments


Country Rationale/Objective Depth of Relief Timing of Relief PerformanceCriteria/Linkage for Relief

Other

Canada Enhancing debt relief to theHIPCs will contributesignificantly to povertyalleviation and sustainabledevelopment.

Lower the NPV of debt-to-export target to 150 %.

Bilaterals to forgive ODAdebt of the HIPCs, andprovide developmentassistance only on grantterms.

Paris Club to provide full(100 %) write-down for allLLDCs expected to qualifyfor HIPC assistance, as wellas for Honduras. Even in theabsence of agreement on this,Canada would unilaterallywrite off debts for countriesthat can use resourceseffectively and productivelyand are practising goodgovernance, or for othercountries, when their situationpermits, consider debtconversion to support criticaldevelopment projects.

Shorten the track record to3 years.

Unilateral additional debt relieffor good governance andimprovement in human rightsconditions.

Extend HIPC debt relief tomore countries (includingHonduras, Haiti, Malawi,and when political situationpermits Afghanistan).

Creditor countries to adoptgreater transparency inlending and good lendingpractices. Develop a codeof conduct for export creditagencies and other tradefinance institutions.

Additional debt relief of (in1998 NPV terms):US$8 billion for loweringthe export target; up toUS$6 billion for shorteningtrack record; and up toUS$2.8 billion forbroadening eligibility.




Other

France G7 approach should begenerous, whileemphasizing the principlesof equitable burden sharingamong creditors andresponsible performance bydebtors.

Eligible HIPCs could receiveexceptional ODA debt relieffrom Paris Club creditors, nodebt service on ODA for ageneration.

Poor countries not eligible forthe Initiative could receiveenhanced concessionality.

Developing countries couldbenefit from an increase of thedebt conversion limit in ParisClub agreements.

ODA cancellation as soonas debt is definitivelytreated in Paris Clubframework; interim periodbeing reduced on a case-by-case basis taking intoaccount past track record inadjustment policies.

Exceptional debt reliefmeasures should be limited tocountries with impeccableeconomic and social policiesand good governance.Implementation of reformprograms supported by BrettonWoods institutions remaincritical.

Equitable burden sharingshould prevail, not only asbetween multilateral andbilateral creditors, but alsoamong the bilaterals,especially as regards ODAcancellation.

Germany To ensure that people inless well-developedeconomies also benefitfrom the opportunitiesoffered by globalization.

Set threshold and target forindebtedness at 200 % ofexports, with some flexibilityin exceptional cases.Paris Club to cancel up to100 % of commercial debt forcountries in exceptionallydifficult situations.A multilaterally agreedapproach should provide for amandatory completecancellation in the Paris Clubof ODA debts for HIPCsqualifying for relief under theInitiative.

Six-year track record ofperformance should bereduced to three years. Allqualifying countries shouldbe able to reach decisionpoints by the year 2000.

No change proposed torequirement for IMF- andWorld Bank supported reformprograms, except for shorteningof performance period.

Financing for the Initiativemust be assured. G7countries should contributeto full financing byparticipating in the HIPCTrust Fund. The IMF mustbe enabled to make its fullcontribution to theInitiative.

Funds released in nationalcurrency should bedeployed for projectsdesigned to eliminatepoverty and promotesustainable development.




Other

Ireland 1 HIPC Initiative is a robustframework for dealing withthe debt issue, but needs tobe deepened, broadenedand accelerated.Definition of debtsustainability should notlose sight of ultimate goalof poverty eradication.Case for ring-fencing socialexpenditures, before fiscalthresholds are brought tobear. Domestic debt shouldalso be factored in.

Favor a reduction in bothNPV and debt serviceeligibility criteria and targets.

Welcome pledges of manybilateral creditors to cancelODA and commercial debts.Ireland's aid mostly in grants.

Proposals for unconditional,large-scale cancellation ofmultilateral debt requirecareful analysis of potentialimpact on IFIs, officialresource flows and privatecapital flows to HIPCs.

Maximum number ofcountries should reachdecision point by 2000.Shorten period of trackrecord and accelerate debtrelief, but in the context ofa realistic and achievablenational development planmapping out policies overthe medium and long term.

Social considerations andhuman development indicatorsshould be an integral part of theInitiative, not an afterthought.Need for broad local ownershipand empowerment to ensuresustained implementation ofreforms. Control andmonitoring needed to minimizemoral hazard, should be usedwith sensitivity and in a spiritof partnership.Use flexible approach whensoundly-based policies arederailed by exogenousdevelopments.

Irish Government haspassed legislation for amajor third world debtrelief package whichincludes support for IMFand World Bankparticipation in the HIPCInitiative and plans forbilateral assistance for debtrelief and a contribution tothe ESAF Trust.

Middle and lower-middleincome countries shouldnot bear the cost ofadditional relief to HIPCs.

United Kingdom HIPC debt relief takes toolong, does not ensure arobust exit from debtproblems and should makea greater contribution toreducing poverty.

Bilateral creditors and IFIsshould make a commitmentto reduce the debt burden ofthe world's poorestcountries by $50 billion byend-2000.

Lower the existing fiscal ratioand apply it to a wider rangeof countries and/or lower thedebt/export ratio. Targetrelief on reduction in actualdebt service paid in the earlyyears.

Paris Club creditors shouldagree to go above 80 % debtrelief where necessary, withcommensurate burden sharingby the IFIs, and ODA debts ofHIPCs should be written offby those creditors which havenot yet done so.

Shorten timetable for debtrelief from 6 to 3 years.(Continuing need for aidwill anyway act as a strongpositive incentive to goodperformance, even after thecompletion point.)

Establish closer ties betweendebt relief and povertyreduction (including DACtarget to halve the proportion ofpeople in extreme poverty by2015).

The developed worldshould increase its aidflows to developingcountries to $60 billion bythe year 2000.

Resources released shouldbe invested in health andeducation in countriesconcerned.

Challenge UK NGOs tomake donations todeveloping countries ofUS$1 billion up to the year2000, with tax incentive.

1 Ireland’s aid is grant based.




Other

United States Ensure that no countrycommitted to fundamentalreform is left with a debtburden that keeps it frommeeting its peoples' basichuman needs and spurringgrowth.

Paris Club to write off allODA bilateral loans of HIPCsand increase debt relief onother loans from 80 % to90 %, and in exceptional caseson a broader base of debt.

Deeper debt reduction forcountries which areexceptional performers.

Add early cash flow relieffrom IFIs.

Funds freed by debt relief to bechanneled into education orenvironmental protection withthe use of debt-for-nature-swaps.

Proposed approach couldresult in additional nominaldebt relief of $70 billion.

U.S. support for gold salesby the IMF and bilateraladditional contributions tothe World Bank's HIPCTrust Fund to help meetcost of Initiative.

Donor countries shouldcommit to provide at least90 % of new developmentassistance on a grant basisto HIPCs.

Take new approaches topromote reconstruction incountries emerging fromprotracted domesticconflicts.

Annex 5: Selected Comments on Debt Relief for Poor Countriesby Multilateral Institutions



Other

Asian DevelopmentBank 1

The export-based debtindicators used in HIPCframework are not a goodmeasure of debt repaymentcapacity because theyexclude tradable goods soldat home. To approximatethe ratio of debt to output oftradable goods, use aweighted average of thedebt/output ratio anddebt/export ratio.

Private debt should beconsidered along withpublic debt.

Fiscal criteria should takerevenue into account.

An alternative fiscal criterionto determine depth of reliefwould be the sustainableprimary balance, defined asthe ratio needed to keep theratio of public sector debt toGDP constant.

Six year track recordrequirement appears toolong. Alternatives couldinclude shortening of thesecond stage, or eliminationof either first or secondstage.

A potential weakness is that theperformance criteria apply onlyup to the completion point,providing no assurance oncontinued sound performancethereafter.

Diverting funds for debtrelief from aid flows topoor countries which havefollowed prudent policieswould involve anefficiency loss.

African DevelopmentBank Group (AfDB) 2

The definition of debtsustainability should gobeyond macroeconomicindicators, to focus also onthe root cause of Africa'spersistent debt problem,poverty. Poverty andgovernance indicators couldcomplement the moretraditional indicators indetermining both countryperformance anddevelopment impact.

Serious consideration shouldbe given to a deepening ofdebt relief for eligiblecountries by "reducing thepost-Initiative sustainabilitytargets".

Domestic debt also needs tobe considered. Domesticdebt reduction programsshould be complementary tothe HIPC program. Optionsfor financing domestic debtreduction could includerescheduling arrangements,the use of counter-partyfunds and direct bilateralfunding.

There may be merit in fasttracking assistance. Therecould be a case for areduction in the generaltrack record length, withfurther shortening possibleon a case-by-case basis.

Performance requirementsshould be retained as essentialto ensure debt relief is notwasted.

The HIPC Initiative shouldincorporate institutionalstrengthening and capacitybuilding for efficient debtmanagement.

The timing and scope ofany modifications to theInitiative must be dictatedby resource availability.Financing options mayinclude increased bilateralcontributions, gold sales, asignificant deepening ofParis Club debt relief anda variety of reschedulingscenarios.

1 See Asian Development Bank Response to the HIPC Questionnaire (March 25, 1999).2 Communication from AfDB Strategic Planning and Research Department (March 15, 1999).




Other

Banque Centrale desEtats de l'Afrique del'Ouest (BECEAO) 3

The HIPC Initiative is amajor step forward, buteligibility criteria are toorestrictive.In addition, domestic debt,social indicators andindicators of fiscal effortshould also be taken intoaccount to determine debtsustainability.

The sustainability range forthe NPV/export ratio shouldbe lowered to 100-150% andthe range for the debt serviceratio brought down to 10-15%.The target for the ratio ofNPV of debt to fiscalrevenue should be lowered to200%. Under the fiscalcriteria, the eligibilitythresholds for the ratio ofexports and fiscal revenue toGDP should be lowered to20 and 15%, respectively.

The timetable should beshortened, e.g. bycollapsing the timing forthe decision and completionpoints.

No change suggested, apartfrom shortening theperformance period.

Channel savings from debtrelief into a Special Fund forpriority spending, undermonitoring from civil society.

CommonwealthSecretariat 4

Address the concerns by anumber of HIPCs about thelack of tangible progress ineasing the debt burden.

Address the special needsof post-conflict countries.

Provide sufficient debt reliefthat yields a genuinelysustainable debt position. Inthis context, the debtsustainability criteria shouldbe reviewed.

Need to speed up theprocess to ensure that debtrelief is provided as quicklyas possible.

Specifically, ensure that 22countries reach theirdecision points by the endof 1999.

Need to promote a much closerlink between the Initiative andpoverty reduction, consistentwith the internationaldevelopment targets.

The Secretariat has beenassisting governments instrengthening debtmanagement capacity,including debtsustainability analysis.

3 See "Réponses au Questionnaire de la Banque Mondiale et du FMI dans le Cadre de la Revue de l'Initiative PPTE" (March 19, 1999).4 See Commonwealth Finance Ministers Meeting, Ottawa, Canada, 29 September-1 October 1998, "Key issues in the Implementation of the Mauritius Mandate and the Heavily Indebted Poor Countries (HIPC)Programme".




Other

International Fund forAgriculturalDevelopment (IFAD) 5

Broad concerns about theprecarious nature of debtsustainability over time(concerns include inevitableuncertainties of futureexport performance, andpossible continued poorborrowing policies bydebtors).

Special focus on enlargingthe social performanceconcept to include ruraldevelopment. Debtsustainability targets shouldallow for the need forinvestments to revive therural economy.

Debt sustainability targetsshould be reviewed, andcountries with particularvulnerabilities should getdeeper relief. Countriesemerging from crises (civilstrife, natural disasters)should get faster and deeperrelief. Also, debt relieftargets should differentiatebetween countries dependingon whether the majorproblem is short-term debtservicing, as against long-term debt overhang.

Qualifying requirements forfiscal/export criteria shouldinclude fair prices to exportproducers and resourceallocation in favor of ruralpoverty eradication.

Policy performance couldbe a medium-termobjective, rather than aprecondition. The qualityand irreversibility of thereform process is moreimportant than the timeelement of the track record.

IFAD advocates a moreproactive and phasedapproach with clearlydelineated performanceobjectives and resultindicators that wouldtrigger some level and formof debt relief at each phaseof policy reform.

Conditionality should includepolicy objectives that enhanceeconomic productivity in ruralareas: enabling policies andadditional investments.Particular emphasis ondecentralization andparticipatory approaches,fostering of grassrootsinstitutions, gender responsivedevelopment strategies.

Freed-up resources should beused for the enhancement ofrural productivity.

The reform efforts should becomplemented with additionalresources on highlyconcessional terms for povertyeradication programs.

Funding for debt reliefmust come from bilateraldonors, either directly orindirectly through theirmultilateral institutions.IFIs will require additionalresources from theirbilateral shareholders topreserve their own lendingability. Aid budgetsshould be increased.

5 See IFAD's reply to Website questionnaire "Review of the HIPC Debt initiative" (March 18, 1999).




Other

UNICEF 6 African countries spendnearly twice as much ondebt service than on basicsocial services, whilehundreds of million ofchildren have no access tobasic education, primaryhealth care, adequatenutrition, safe water andsanitation. The argument infavor of basic socialservices is not only ethicalbut also economic, asexperience shows that rapidand sustained economicprogress cannot take placewhere a minimum packageof universal basic socialservices is not in place.

Defining debt sustainabilitysolely in terms of exports inincomplete. Fiscal criteriashould also apply to allcountries. The HIPCInitiative should adopt oneset of criteria and thresholdsapplicable to all IDA-onlycountries.

No change proposed for theNPV of debt/export ratio ordebt service/export ratiotarget ranges.Introduce a general fiscalsustainability target: thedebt service/revenue ratioshould be below 20%. Debtservicing is moreappropriate than a debt stockindicator.

Countries should build atrack record over 2-3 years,during which they wouldincrease the fiscalrevenue/GDP ratio to aminimum of 20% andallocate a minimum of 13%of the budget to basic socialservices in order to qualify.

After qualifying, a decisionwould be taken, and debtrelief deliveredimmediately, collapsingdecision and completionpoints and shortening theoverall waiting period from6 to 2-3 years.

Debtor governments would berequired to formally expresscommitment to achieveuniversal access to basic socialservices within a maximumtimeframe of 15 years as part ofa poverty reduction framework.

Expenditure on basic socialservices would be considerednon-discretionary spending inthe budget. Basic socialservices and debt servicingwould be required to absorb nomore than 20% each of thenational budget, and togetherthey would be required toabsorb no more than one-thirdof the budget. This wouldprovide an incentive forgovernments to spend anadequate amount on basicsocial services while providingassurances that the fiscaldividend from debt relief willgo to priority social spending.

6 See UNICEF, "A proposal for HIPC reform" (March 1999).




Other

United NationsDevelopmentProgramme (UNDP) 7

The HIPC Initiative isinsufficient to achieve trueexternal financialsustainability. In addition,there should be betterintegration between theobjectives of externalfinancial sustainability andhuman developmentobjectives.

HIPC debt sustainabilityratios are too high, exportprojections are unrealistic,and the Initiative does notyield a substantial fiscaldividend. It merely reducesa stock of debt that thecountry would not have beenable to pay back anyway.

The current timeframeshould be shortened.Moreover, the standard sixyears of track record caneasily become longer, dueto slippages in theimplementation of stringentconditions associated withadjustment programs.

Assessment of track recordshould not be left to the IMFalone and the assessmentprocess should be moretransparent. Debt relief shouldbe linked explicitly to theattainment of broader socialand human developmentobjectives consistent with theDAC targets. But there shouldbe government ownership ofthe targets, rather thanadditional conditionality.

Debt relief negotiationsshould be incorporatedinto broader developmentdialogue, e. g. atConsultative Group orRound Table meetings.

Financing for debt reliefshould not be at theexpense of ODA flows.Additional funding shouldcome from the multilateralinstitutions, and the ParisClub should amend itsrules on cut-off dates andconcessionality.

United NationsSecretary-General 8

The results of the Initiativehave been disappointing.

Accelerate theimplementation of theHIPC Initiative and ensurethat all eligible countriesembark on the HIPCprocess by the year 2000.

The Initiative should not beslowed down by anyshortfall in funding.

Criteria and targets should beflexible enough to take intoaccount different debtsituations. Considerationshould be given to applyinga debt sustainability targetbelow the current ranges,when it can be establishedthat the debtor countriescannot afford debt serviceshigher than a certain level,commensurate with longterm growth and human andsocial developmentobjectives.

The six-year performanceperiod is considered toolong.

Shorten the interim periodto one year.

7 See UNDP Submission to the HIPC Review (March 1999).8 See Report by the Secretary-General to the UN Security Council: “The Causes of Conflict and the Promotion of Durable Peace and Sustainable Development in Africa", April 16, 1998, p.22; and Report bythe Secretary-General to the General Assembly: “Debt situation of the developing countries as of mid-1998”, September 11, 1998, pp. 7-8 and 13.

Heavily Indebted Poor Countries (HIPC) Initiative - Perspectives on … · 1999. 4. 21. · EADB,...

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Transcript of Heavily Indebted Poor Countries (HIPC) Initiative - Perspectives on … · 1999. 4. 21. · EADB,...