Implementing the HIPC Initiative: Sharing Experiences Marlborough House, London 2-3 August 1999
4 August 1999
Summary of Opinions1 : Participants welcomed the proposals to broaden and deepen the debt relief available under the Heavily Indebted Poor Countries (HIPC) initiative, which were made at this year's G8 heads of government summit in Cologne. But they felt the terms of debt relief should be kept under review to ensure that they provide a sustainable exit for the HIPC countries. They also welcomed the proposal to link the 'completion point' at which a country will receive debt stock relief to the achievement of specific policy targets. This greater flexibility should be used to reduce the time for which a country has to wait for debt relief, rather than increasing it. They also welcomed the proposed provision of interim relief from the 'decision point' by multilateral institutions and the greater emphasis on growth and poverty reduction as the ultimate objective of debt relief.
2 : Participants agreed that there is a trade-off between the different forms in which a given amount of debt relief can be provided. Front-loaded debt service relief is the most effective way to create fiscal space for direct spending on poverty reduction measures, including (but not limited to) health and education. Stock relief removes the overhang of unserviced debt, thus encouraging investment, promoting growth and reducing poverty
indirectly. The balance between the two should be decided on a case-by-case basis, but greater emphasis on fiscal dimensions of debt sustainability is welcome.
3 : It was noted that Enhanced Structural Adjustment Facility (ESAF)-supported programmes can promote investment and growth by building confidence in financial markets, although the link between the implementation of these programmes and growth outcomes will need to be strengthened. ESAF should be integrated within a broader poverty reduction framework, including an assessment of the impact of ESAF conditions on vulnerable groups. The Comprehensive Development Framework provides a possible
template. Recipient countries should have ownership of this process, recognising that poverty eradication is a long-term challenge dependent on much more than debt relief. Debt relief should be linked explicitly to the achievement of the DAC (Development Assistance Committee) targets for 2015, for which more effective statistical indicators of poverty are essential. The importance of channelling the proceeds of debt relief into poverty reduction should not be used as an excuse for piling detailed social policy conditions on top of macroeconomic ones. Any such social policy conditions should be simple, realistic and limited in number.
4 : There was also general agreement that for faster growth, there is a need for an improved investment climate, including enhanced transparency of policies and institutions and public accountability.
5 : The International Monetary Fund (IMF) and World Bank estimated that revamping the HIPC initiative would double both the financial benefits to debtors and the cost to creditors. But participants also noted that to the extent that for the bilaterals especially, part of this debt might have been written down in official balance sheets, the extent of these costs would be less than the nominal values would suggest.
6 : Given that the original HIPC initiative was never fully financed, the challenge of paying for the enhanced proposals in a way that is fully additional will be all the more acute. Creditors should bear the burden of reducing a recipient country's debt to sustainable levels proportionately, so bilateral creditors that are not members of the Paris Club must pay their full part in the process.
7 : For its part, the IMF should explore all possible options to finance its share of HIPC costs, including the sale and reinvestment of part of its gold reserves. These should take account of the impact this might have on gold producing and gold dependent countries, particularly the HIPCs themselves, and do what it can to limit any uncertainty this might cause in the gold market. Meanwhile, the bilateral contributions will be essential to meet the costs of the World Bank, the IMF, the African Development Bank and other multilateral development banks. In the case of the World Bank, drawing on IDA (International Development Association) or net income will limit the Bank's capacity to lend.
8 : Participants agreed that HIPC countries should be provided with opportunities to consult among themselves and share their experiences of how best to leverage poverty reduction through debt relief. Earmarking the benefits of debt relief in ring-fenced funds can be a useful approach, but only as part of an open and comprehensive medium term framework for public expenditure, with the involvement of civil society and other stakeholders. The process of agreeing debt relief should also be more transparent.
Editors Note:
The Commonwealth Secretariat convened a high-level meeting on 2-3 August 1999, to exchange ideas and experiences on the issues central to reform of the HIPC Initiative, launched in September 1996. The meeting also reviewed the proposals of the Cologne Debt Initiative, launched in June 1999 by the G8 industrialised countries, which in turn aims to secure deeper, broader and faster debt relief with major changes to the HIPC Initiative.
The meeting was attended by High Commissioners and senior government officials from Commonwealth HIPC countries, and representatives of civil society, the academic community, religious groups, non-governmental organisations (NGOs) and the press.
Issued by the Information and Public Affairs Division, Commonwealth Secretariat,
Marlborough House,
Pall Mall,
London SW1Y 5HX,
United Kingdom.
Tel: 0207-839 3411;
Fax: 0207-839 9081;
Telex: 27678
99/47 4 August, 1999
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