There is "lingering dissatisfaction" with aspects of the HIPC initiative, reports an Economic Commission for Africa (ECA) paper prepared for the sixth Conference of African Finance Ministers.* Causes of dissatisfaction include the "conflict of interest and possible lack of objectivity" on the part of the World Bank and IMF, architects of the deal and themselves major creditors with privileged status. This issue makes some analysts feel that the HIPC package might have been better balanced if an independent commission had steered its design process, the paper says.
Could the Bank and Fund's potential conflict of interest, "driven by the possible objective of minimizing costs to themselves," have been a factor in limiting the number of countries potentially eligible for the HIPC deal? The UN Conference on Trade and Development (UNCTAD) and African ministers are among critics who have described as "artificial" the distinctions made between countries facing the same reality of debts far in excess of servicing capacity. And in February, the European Network on Debt and Development (EURODAD) said that several IMF executive directors had confirmed the fear of non-governmental organizations that a "minimalist approach was to be expected from the IMF, namely ‘as little debt reduction, for as few countries, as late as possible.'"
Another concern is that tough performance criteria in the framework of adjustment programmes could result in "help for too few countries, too late." Citing past experience, the ECA says the single biggest risk to the initiative is countries failing to meet targets and conditionalities, a risk that grows with the length of the HIPC programme. It notes the widespread criticisms of failed Bank/Fund programmes for having set "unrealistic" targets. But many African governments have also said, after the fact, that they accepted the targets because they needed the money and had no choice. The ECA says "this way of looking at the issue should change." It urges African countries to negotiate assertively, pointing out that unrealistic targets may just have been poorly negotiated features of a programme which then become "a major source of non-compliance, slippage and even termination of programmes." African HIPCs must also "do their homework well in advance" for the critical debt sustainability analysis, the paper advises, in order to play a decisive role in an exercise which determines eligibility for actual HIPC debt relief.
Due to early criticism, the Bank and Fund have conceded that HIPC debt relief will be based on actual and not projected ratios of debt-to-exports and debt service-to-exports. But in another crucial area – the fiscal burden of debt – the HIPC package remains inadequate, some analysts say, pointing out that countries with debt-management problems are commonly unable to control fiscal deficits.
The Bank/Fund response is that "due attention" will be paid to fiscal constraints as a vulnerability factor, on a case-by-case basis. The ECA says this is "not good enough analytically" because it "denies the inherent interdependence of the four structural blocks of the macrosystem – the balance of payments account, monetary accounts, fiscal accounts and the national income and product account." Relegating the fiscal constraint to a position inferior to the foreign exchange constraint in the policy models "...is clearly a weak link in the tools developed for decisions."
The six-year, two-stage HIPC process also "imposes unnecessary hardship" on countries likely to carry most of their unsustainable debt through those years, the ECA paper argues. Among other issues, it probes the ambiguous provisions for financing the HIPC package, especially the workings of the World Bank's HIPC Trust Fund, the criteria and terms on which the IMF is to provide ESAF grants and loans, and the need for better treatment of post-cut-off date debt.