In 1996, the World Bank and the International Monetary Fund (IMF) launched the Heavily Indebted Poor Country (HIPC) Initiative. The objective of the Initiative is to reduce the external debt of the world’s poorest, most heavily indebted countries to sustainable levels. The Initiative provides substantial debt relief to countries which implement critical social and economic reforms as part of an integrated approach to lasting development.

1999 HIPC Review

The Initiative has accomplished a great deal over the little more than two years it has been in place. But more needs to be done. We all want the HIPC to be as effective as it can possibly be. Toward that end, the Boards of the World Bank and IMF have called for a comprehensive review of the HIPC Initiative, including updated cost estimates.

To be a valuable exercise, this review would benefit from the ideas and perspectives of the many organizations and individuals dedicated to the complex challenge of development and poverty reduction. Indeed, from the very beginning the HIPC process has benefited from consultation with civil society in all parts of the world. Staff and management from the World Bank and IMF have participated in more than 100 seminars, meetings, conferences, town halls and other opportunities for dialogue with non-governmental organizations, schools, churches, journalists, the private sector, and others on all aspects of the Initiative. Recently, a number of organizations have produced detailed and insightful analyses on the HIPC Initiative and debt relief more broadly. We want to build on this existing consultative process as we carry out this year’s comprehensive review.

In late January, Chancellor Schroeder announced the Cologne Debt Initiative (see Financial Times, January 21). This presents both an opportunity and a challenge. The opportunity is that at the G-7 Summit in Cologne, world leaders could provide a major impetus to the HIPC Initiative. The challenge is to assure that the views of the international community in general, and your views in particular, can feed into the policy discussions leading up to the Cologne Summit.

To meet this challenge we are undertaking a two-stage consultative process:

Phase one: We would appreciate your general views on the HIPC Initiative as well as your input on quite technical questions on defining debt-sustainability, time-frames, and links to macroeconomic and structural policy reforms. Given the timetable outlined above, we are requesting your input on a first set of questions by March 15. We can then add these contributions to those we have been collecting and studying as part of our continued analysis. These views will be reported to the Boards of the World Bank and IMF for their April deliberations, leading up to the Interim and Development Committees on April 27 and 28.

Phase two: On a more extended time-frame, there are a second set of questions on the relationship between debt relief, social policies and poverty reduction. We would appreciate your reactions to these questions by mid-June. These responses will be reported to the Boards of both institutions as they make decisions on the HIPC Initiative in the run-up to the 1999 Annual Meetings in late September.

PHASE ONE—To be completed by March 15, 1999

In addition to your general views on the HIPC Initiative, we welcome in particular your views on the following specific questions:

Debt Sustainability: Does the current HIPC Initiative framework achieve debt sustainability? Do you agree with the eligibility criteria and debt sustainability targets (both relating to present value and debt service)? If not, how should they be changed to meet the needs of poor, heavily indebted countries?

Fiscal Targets: Do you agree with the fiscal criteria and the thresholds for qualifying for the net Present value (NPV) of debt-to-fiscal target? If not, how should they be modified? How should domestic debt be treated under the HIPC Initiative?

Policy Link and Timing: Are there countries which should receive debt relief sooner than is scheduled? If so, why? What conditionality, length of track record and timing would you recommend for HIPC debt relief? How can we best ensure that the mix of resources provided—including balance of payments and budgetary support plus debt relief—promotes broad-based growth and development, is used effectively, and moral hazard is minimized?

Financing. Do you have any suggestions for the financing of any additional cost arising from changes in the HIPC framework? Given current aid budgets, should resources be diverted from less indebted poor countries to finance debt relief for HIPCs? Should aid budgets be increased to finance additional debt relief for HIPCs? What if this is not possible?

PHASE TWO: To be completed by Mid-June, 1999

While we anticipate that the dialogue between now and March 15 will yield a number of important new questions, which we will post on this page, we would like to pose the following for consideration in the meantime.

Poverty Reduction: How can the link between poverty reduction and debt relief be strengthened in the programs supported through the HIPC Initiative? How should they be linked to be the achievement of the international development goals set for 2015? How can the debt relief provided be most effectively used to foster social development particularly in the health and education fields?

Delivery of Debt Relief. Under the current framework, the HIPC Initiative focusses primarily on reducing the debt overhang, i.e., reducing the debt stock which reduces debt service over the long-run. Do you think that more weight ought to be given to reducing debt service burdens in the short term?

Debt Management: Do you have any suggestions for improving debt management within HIPC countries?

All responses should be sent by March 15 (Phase One) and by June 18 (Phase Two) to both the IMF and the World Bank--hipc@imf.org and hipc@worldbank.org. Please address any questions you may have to Gita Bhatt at (202) 623-7968 or via e-mail at gbhatt@imf.org.