HIPC-1: the story so far

 

  • When creditors launched the initiative in 1996, they listed 41 countries as potentially eligible for HIPC treatment. These were: Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of Congo, Republic of Congo, Côte d'Ivoire, Equatorial Guinea, Ethiopia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Laos, Liberia, Madagascar, Malawi (which replaced Nigeria on the original list), Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Yemen, Zambia. Since then, creditors have reviewed the eligibility of 12 HIPCs.

  • So far only four countries have had their debt reduced: Uganda, which received $347 mn (in net present value terms) in April 1998; Bolivia, which received $448 mn in September 1998; and Guyana and Mozambique, which reached completion point this year, with deals worth $253 mn and $1.7 bn respectively. All would be entitled to deeper relief under HIPC-2.

  • Creditors have approved debt reduction for a further three countries, provided they maintain appropriate macroeconomic policies: Mali is scheduled to get relief this year, Burkina Faso in April 2000, and Côte d'Ivoire in March 2001.

  • Creditors examined, then excluded Benin and Senegal. They said the use of pre-HIPC debt relief mechanisms would have reduced Benin's debt-to-export ratio at completion point to 187 per cent. Despite severe fiscal strains -- a debt-to-revenue ratio of 166 per cent.

  • Benin was excluded on fiscal grounds because current rules limit HIPC relief to countries with "open economies and larger revenue bases." Senegal was also ruled out because its debt-to-revenue ratio was projected at 242 per cent. Both countries would be admitted under HIPC-2.

  • Preliminary debt sustainability analyses concluded that Ethiopia, Mauritania and Guinea-Bissau would be expected to qualify. However, both Ethiopia and Guinea-Bissau need to be reviewed again because their programmes have been derailed by conflict and other developments.

  • Fifteen countries were due to have debt sustainability analyses (and, in some cases, possible decision points) in 1999, World Bank and IMF documents suggest: Chad, Ghana, Guinea, Honduras, Laos, Malawi, Mauritania, Nicaragua, Niger, Republic of Congo, Tanzania, Togo, Vietnam, Yemen and Zambia.

  • Those scheduled for later analyses are: Rwanda (2000), Cameroon (2000), Central African Republic (2001) and Kenya (2000).

 

Some sensitive issues of deeper debt relief

 

World Bank Vice-President for Africa Callisto Madavo spoke with Africa Recovery in New York in early June 1999.

Mr. Callisto Madavo

Major creditors have engaged in "some one-upmanship, a sort of competition" to announce proposals for improving the HIPC package, Mr. Callisto Madavo, a World Bank Vice-President for Africa, told Africa Recovery a couple of weeks before the Cologne summit of the Group of Seven in June. But "people have been rather silent about how it is going to be financed," he observed, asking whether creditors are prepared to "dig deep into their pockets... without playing a game in which the contribution to HIPC is taken at the expense of official development assistance flows."

But HIPC countries also have responsibilities, and it would be a "tragedy and a hoax of the first order" if debt relief goes into "supporting airports at villages of presidents in Africa, or buying executive jets," Mr. Madavo added. Asked to defend this simple version of the "moral hazard" issue (where fresh lending and debt relief supposedly "reward" bad practices), he conceded that the "chances of such misuse of funds are minimal." Still, he insisted, the subject must be kept alive.

On the distribution of debt-relief costs -- known as "burden sharing" -- between and among multilateral and bilateral creditors, Mr. Madavo said this complex issue must be handled with sensitivity and in a spirit of solidarity "to make sure that everybody does in fact make a contribution." France, for example, is "much more exposed in Africa than, say, the US. So depending on the solution chosen, the impact on the bilaterals could fall very differently, and that needs to be harmonized." Among multilaterals, he said resources would have to be found for the African Development Bank which "does not have the capacity to carry" some of its debt relief obligations. The World Bank could itself face extra costs of some $2.5 bn, and would have to "ask for some contributions" from bilaterals so it could fulfil its own obligations.

Asked if he recognized the category of "odious debt" -- debt incurred by a previous regime for repressive and/or corrupt practices -- Mr. Madavo said: "One would be lying if one did not admit that there are dimensions of this debt problem where that is very much there. The question is: how do you define it? How do you handle it in a way that you don't in some sense begin to undermine the sovereignty and credibility of governments in developing countries? What you are saying is that there are going to be certain debts that were incurred and should be honoured and other debts that should not be honoured. What are the criteria you are going to use to make these distinctions? I'm not running away from that issue. I'm just pointing to the complexity because it has all kinds of other implications. Who is going to decide?"

But "odious" debt is very important for such countries as the Democratic Republic of Congo and Rwanda, Africa Recovery insisted. "Agreed," said Mr. Madavo, concluding the interview with an enigmatic smile.

-- Nii K. Bentsi-Enchill

 

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