This paper describes the Heavily Indebted Poor Countries (HIPC) Initiative and suggests that it should enable HIPCs to exit from the debt-rescheduling process. It argues that implementation of the Initiative should eliminate debt as an impediment to economic development and growth and enable HIPC governments to focus on the difficult policies and reforms required to remove the remaining impediments to achieving sustainable development. The paper describes the implementation of the Initiative through the end of September 1998.
The paper describes the debt burden of low-income countries and the traditional mechanisms that have been implemented by the international community to alleviate this burden. While these mechanisms are sufficient to reduce the external debts of many heavily indebted poor countries (HIPCs) to sustainable levels provided these countries implement sound economic policies, they are likely insufficient for a number of countries. To deal with these cases, the World Bank and the IMF have jointly proposed and implemented the HIPC Initiative. The paper describes this Initiative and suggests that it should enable HIPCs to exit from the debt rescheduling process.
The low-income country debt crisis had its origins in weak macroeconomic policies, and official creditors’ willingness to take risks unacceptable to private lenders. Payments problems were initially addressed through nonconcessional reschedulings and new lending that maximized financing while containing the budgetary costs for creditors. This led to an unsustainable buildup in debt stocks. More recently, debt ratios have improved, reflecting both adjustment and substantial debt relief. The paper estimates debt relief initiatives since 1988 have cost creditors at least $30 billion, and possibly much more. This compares with the estimated costs of about $27 billion under the enhanced HIPC Initiative.
This pamphlet describes the IMF-World Bank initiative begun in 1996 to address in a comprehensive manner the overall debt burden of eligible heavily indebted poor countries (HIPCs) pursuing programs of adjustment and reform supported by the two organizations. The aim of the Initiative is to reduce these countries' debt to sustainable levels so that they can meet current and future debt service obligations without unduly compromising growth. This pamphlet describes the rationale for the main features of the Initiative as it was originally conceived in 1996, and its implementation through the fall of 1999, which culminated in the approval of an enhanced HIPC Initiative in late 1999 that is aimed at providing deeper and more rapid debt relief to a larger number of countries. The enhanced HIPC Initiative also seeks to ensure that debt relief is integrated into a comprehensive poverty reduction strategy that is developed with broad-based participation and tailored to the country's circumstances. The current edition was revised in 1999.
The history of debt relief goes back several decades. It reveals that a country s accumulation of unsustainable debt stems from such factors as deficiencies in macroeconomic management, adverse terms-of-trade shocks, and poor governance. Debt-relief initiatives have provided debt-burdened countries with the opportunity for a fresh start, but whether the benefits of debt relief can be preserved depends on transformations in a country s policies and institutions. In 1996, the Heavily Indebted Poor Countries (HIPC) Initiative was launched as the first comprehensive, multilateral, debt-relief framework for low-income countries. In 2005, the Multilateral Debt Relief Initiative was established, which increased the level of debt relief provided to HIPCs. As of early 2009, assistance through these two initiatives had been committed to 35 countries and amounted to US$117 billion in nominal terms, or half of the 2007 GDP of these countries. 'Debt Relief and Beyond' assesses the implications of debt relief for low-income countries and how its benefits can be preserved and used to fight poverty. The chapter authors bring unique operational experience to their examination of debt relief, debt sustainability, and debt management. Several key questions are addressed, including, what consequences does debt relief have for poverty-reducing expenditures, growth, and access to finance? Can debt relief guarantee debt sustainability? How can debt management at all levels of government be improved? What lessons can be learned from countries that have experienced debt restructuring? Finally, this book provides sound empirical evidence using current econometric techniques.
The Heavily Indebted Poor Countries (HIPC) Initiative, launched in 1999 by the IMF and the World Bank, was the first coordinated effort by the international financial community to reduce the foreign debt of the world’s poorest countries. It was based on the theory that economic growth in heavily indebted poor countries was being stifled by heavy debt burdens, making it virtually impossible for these countries to escape poverty. However, most of the empirical research on the effects of debt on growth has lumped together a diverse group of countries, and the literature on the countries’ impact of debt on poor is scant. This pamphlet presents the findings of the authors’ empirical research into the subject, analyzing the channels through which debt affects growth in low-income countries.
The effects of debt relief on incentives to accumulate debt, consume, and invest are an important concern for donors and recipients. Using a dynamic stochastic general equilibrium model of a small open economy with a minimum consumption requirement and an endogenous relief probability, we show that excessive debt accumulation is consistent with an anticipation of a future debt relief. Simulations of the calibrated model using 1982-2006 Ugandan data suggest that debt-relief episodes are likely to have only a temporary impact on the level of debt in low-income countries, while being associated with more consumption and less invesment. The long-run debt-to-GDP ratio is estimated to be about twice as high with debt relief than without it.
After a massive international campaign calling attention to the development impact of foreign debt, the Heavily Indebted Poor Countries (HIPC) initiative is now underway. But will the HIPC Initiative meet its high expectations? Will debt relief substantially raise growth? How do we make sure that debt relief benefits poor people? And how can we ensure that poor countries do not become highly indebted again? These are some of the key policy issues covered in this rigorous and independent analysis of debt, development, and poverty.
This pamphlet describes the IMF-World Bank initiative begun in 1996 to address in a comprehensive manner the overall debt burden of eligible heavily indebted poor countries (HIPCs) pursuing programs of adjustment and reform supported by the two organizations. The aim of the Initiative is to reduce these countries' debt to sustainable levels so that they can meet current and future debt service obligations without unduly compromising growth. This pamphlet describes the rationale for and the main features of the Initiative as it was originally conceived in 1996 and its implementation through the fall of 1999, which culminated in the approval of an enhanced HIPC Initiative in late 1999 that is aimed at providing deeper and more rapid debt relief to a larger number of countries. The enhanced HIPC Initiative also seeks to ensure that debt relief is integrated into a comprehensive poverty reduction strategy that is developed with broad-based participation and tailored to the country's circumstances.
