HIPC Initiative Heavily indebted poor countries

1 hipc initiative

1.1 funding
1.2 criticism
1.3 response criticism

hipc initiative

the hipc initiative initiated international monetary fund , world bank in 1996, following extensive lobbying ngos , other bodies. provides debt relief , low-interest loans cancel or reduce external debt repayments sustainable levels, meaning can repay debts in timely fashion in future. considered initiative, countries must face unsustainable debt burden cannot managed traditional means. assistance conditional on national governments of these countries meeting range of economic management , performance targets , undertaking economic , social reforms.

as of january 2012, hipc initiative had identified 39 countries (33 of in sub-saharan africa) being potentially eligible receive debt relief. 36 countries have far received full or partial debt relief are: tanzania not part of hipc.

36 countries have completed program , had external debt cancelled in full, after chad passed completion point in 2015.

an additional 3 countries (eritrea, somalia , sudan) being considered entry program.

to receive debt relief under hipc, country must first meet hipc s threshold requirements. @ hipc s inception in 1996, primary threshold requirement country s debt remains @ unsustainable levels despite full application of traditional, bilateral debt relief. @ time, hipc considered debt unsustainable when ratio of debt-to-exports exceeded 200-250% or when ratio of debt-to-government revenues exceeded 280%.

funding

the imf estimates total cost of providing debt relief 40 countries eligible hipc program around $71 billion (in 2007 dollars). half of funding provided imf, world bank, , other multilateral organizations, while other half provided creditor countries. imf s share of cost being funded proceeds of gold sales organization in 1999, estimated not enough cover full cost, , further funding need raised if additional countries such sudan , somalia meet qualification requirements entry program.

criticism

critics began attack hipc s scope , structure. first, criticized hipc s definition of debt sustainability, arguing debt-to-export , debt-to-government-revenues criteria arbitrary , restrictive. evidence, critics highlighted that, 1999, 4 countries had received debt relief under hipc. second, six-year program long , inflexible meet individual needs of debtor nations. third, imf , world bank did not cancel debt until completion point, leaving countries under burden of debt payments while struggled institute structural reforms. fourth, esaf conditions undermined poverty-reduction efforts. example, privatization of utilities tended raise cost of services beyond citizens ability pay. finally, critics attacked hipc program designed creditors protect creditor interests, leaving countries unsustainable debt burdens upon reaching decision point.

inadequate debt relief such countries means need spend more on servicing debts, rather on actively investing in programs can reduce poverty.

response criticism

hipc addressed shortcomings expanding definition of unsustainable debts, making greater relief available more countries, , making relief available sooner.

since 1996, imf has modified hipc in several ways, in response shortcomings critics have highlighted. imf first restructured hipc in 1999. these revisions modified hipc s threshold requirements. today, hipc defines 3 minimum requirements participation in program. first, before, country must show debt unsustainable; however, targets determining sustainability decreased debt-to-export ratio of 150% , debt-to-government-revenues ratio of 250%. second, country must sufficiently poor qualify loans world bank s international development association or imf s poverty reduction , growth facility (prgf, successor esaf), provide long-term, interest-free loans world s poorest nations. lastly, country must establish track record of reforms prevent future debt crises.

in addition modified threshold requirements, 1999 revisions introduced several other changes. first, six-year structure abandoned , replaced floating completion point allows countries progress towards completion in less 6 years. second, revised hipc allows interim debt relief countries begin see partial relief before reaching completion point. third, prgf heavily modified esaf curtailing number , detail of imf conditions , encouraging greater input local community program s design.

one of prgf s goals ensure impoverished nations re-channel government funds freed debt repayment poverty-reduction programs. end, each country s prgf program modeled around poverty reduction strategy paper (prsp). prsps describe macroeconomic, structural, , social programs country follow promote economic growth , reduce poverty. broad range of government, ngo, , civil-society groups must participate in development of prsp ensure plan has local support. under revised hipc, country reaches decision point once has demonstrated progress in following prsp. country reaches completion point once has implemented , followed prsp @ least 1 year , has demonstrated macroeconomic stability.

in 2001, imf introduced tool increase hipc s effectiveness. under new practice of topping up, countries unexpectedly suffer economic setbacks after decision point due external factors, such rising interest rates or falling commodity prices, eligible increased debt forgiveness above decision-point level.

further progress towards debt relief announced on december 21, 2005, when imf granted preliminary approval initial debt relief measure of $3.3 billion 19 of world s poorest countries, world bank expected write off larger debts owed 17 hipcs in mid-2006.

as of december 2006, twenty-one countries have reached hipc completion point. 9 additional countries have passed decision point , working toward completion. ten other countries carry unsustainable debts according hipc standards, have yet reach decision point. far, imf , world bank have approved $35 billion of hipc debt relief. 5 countries have received additional $1.6 billion in topping assistance since 2001.