Press Release No. 03/127

Press Release: IMF and World Bank Support US$10 Billion in Debt Service Relief for the Democratic Republic of the Congo

July 28, 2003

WASHINGTON, July 28, 2003 - The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed that the Democratic Republic of the Congo (DRC) has taken the steps necessary to reach its decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Debt relief under the enhanced HIPC Initiative from all of the DRC's creditors will amount to approximately US$10 billion in nominal terms (or US$6.3 billion in net present value (NPV) terms¹) over time. The DRC becomes the 27^th country to reach its decision point under the enhanced framework of the HIPC Initiative.

Under the enhanced HIPC Initiative, IDA will provide a total of US$1.031 billion in nominal debt service relief (about US$831 million in net present value terms), which will be delivered in part through a 90 percent reduction in debt service on IDA credits from 2003 to 2026. The IMF will provide assistance of approximately US$472 million in NPV terms (equivalent to about SDR 338 million in NPV terms) under the enhanced HIPC Initiative, which will be delivered in part through an average annual reduction in debt service of about 50 percent until 2012. Both institutions have already delivered some of their assistance through the concessional treatment of arrears owed to them, and IDA delivered an additional portion of its assistance through a post-conflict grant. Under the enhanced HIPC Initiative's burden-sharing approach, the DRC's other creditors will provide the remainder of the Initiative's debt relief.

In recognition of the authorities' satisfactory progress in implementing sound macroeconomic and structural policies, the DRC's total external debt in net present value terms is to be reduced by approximately 80 percent under the enhanced HIPC Initiative. "The authorities' implementation of their economic program to date, under difficult circumstances, has been broadly satisfactory and has paved the way for reaching the decision point under the enhanced HIPC Initiative," Mr. Horst Köhler, the IMF's Managing Director, said following the IMF Executive Board discussion on July 23, 2003.

Mr. Emmanuel Mbi, World Bank Country Director for the DRC, stressed that "Executive Directors of the World Bank also warned of the high risks the country faces going forward and urged determined action by the authorities and concerted support from the international community to ensure that economic recovery attains a stronger foothold and the economy begins to realize it enormous potential."

Resources made available by debt relief under the enhanced HIPC Initiative are being allocated to fund key poverty-related expenditure, which is outlined in the DRC's Interim Poverty Reduction Strategy Paper (I-PRSP).

Background:

The DRC

The DRC is emerging from years of political turmoil and economic decline. Over the past two years, in spite of periodic outbursts of violence, the DRC has made considerable progress in consolidating its peace process, stabilizing its economic situation, and creating the conditions for sustainable economic growth and poverty reduction. The DRC has put arrears-clearance operations in place with its external creditors and, after a decade of building up arrears, it is normalizing its economic relations with the international community. In April 2002, the DRC embarked on an economic reform program supported by the IMF and World Bank. For the first time in 13 years, economic growth was positive in 2002, and inflation fell sharply from 135 percent at end-2001 to 16 percent at end-2002. In March 2002, the government produced an I-PRSP through a participatory process that, in preparation of the full PRSP, will broaden as the country reunifies.

The HIPC Initiative

In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world's poorest and most heavily indebted countries, and thereby reduce the constraints on economic growth and poverty reduction imposed by the debt-service burdens in these countries. The Initiative was modified in 1999 to provide three key enhancements:

· Deeper and Broader Relief. External debt thresholds were lowered from the original framework. As a result, more countries have become eligible for debt relief and some countries have become eligible for greater relief;

· Faster Relief. A number of creditors began to provide interim debt relief immediately at the "decision point." Also, the new framework permitted countries to reach the "completion point" faster; and

· Stronger Link Between Debt Relief and Poverty Reduction. Freed resources were to be used to support poverty reduction strategies developed by national governments through a broad consultative process.

To date, 27 countries² - two-thirds of the HIPCs - have reached their decision points and are receiving debt relief from all sources that will amount to more than US$40 billion over time, and an average stock-of-debt reduction in NPV terms of nearly two-thirds.

Of these 27, eight countries - Benin, Bolivia, Burkina Faso, Mauritania, Mali, Mozambique, Tanzania and Uganda - have reached their completion points.

¹ The net present value (NPV) of debt is the discounted sum of all future debt-service obligations (interest and principal). It is a measure that takes into account the degree of concessionality of a country's debt stock. Whenever the interest rate on a loan is lower than the market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element.)

² Benin, Bolivia, Burkina Faso, Cameroon, Chad, Democratic Republic of the Congo, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mauritania, Mali, Mozambique, Nicaragua, Niger, Rwanda, São Tome & Príncipe, Senegal, Sierra Leone, Tanzania, Uganda and Zambia.