The changes announced in late September in Prague to the Heavily Indebted Poor Countries (HIPC) initiative, while falling short of debt lobbyists' recent calls for deeper debt reduction, nevertheless should enhance prospects for getting relief approved for 20 countries by the end of 2000.
World Bank President James Wolfensohn says he is "fairly confident" the target can be met, and that average relief will be 65 per cent of these countries' total debts. Officials set the target last year when they reformed the first, 1996, HIPC initiative. Now however, they are finding that even this new "enhanced HIPC" is delivering relief at a slower pace than many had hoped.
The original initiative identified 41 countries, mostly in Africa, as possible candidates. Yet, as of early October, only 10 countries had passed the so-called decision point -- at which debt relief is approved and partial relief on debt service is given. Of these, only Uganda has passed the completion point, when a country gets all its eligible debt stocks reduced.
The enhanced HIPC included a more flexible approach to the condition which normally required governments to establish a three-year track record of economic reform before the decision point. It became more accommodating towards countries with interrupted track records, provided governments demonstrated strong commitment to reforms, particularly in areas of governance and accountability.
In addition, the International Monetary Fund (IMF) and World Bank began discussing a possible "sharp compression" of the track record in their latest HIPC Review of Implementation, published in early September.
The two institutions also appear set to streamline conditions further. "Broadly, we want to focus on development and poverty reduction policies, and clear away extraneous conditions," one Bank official told Africa Recovery.
For the Bank, this means focusing on basic poverty-reduction priorities, including spending on primary education and health and greater citizens' access to such services, sources say. For the IMF, it implies a stronger focus on macroeconomic and structural reforms under its Poverty Reduction and Growth Facility -- the lending programme that replaced its enhanced structural adjustment facility -- and less importance on minor privatizations and other peripheral issues.
Officials were reluctant to comment more specifically, saying that priorities would differ by country. "The idea is to work with the government to identify what is truly important, and to speed up the process," the Bank source added.
Such reticence reflects fears that greater leniency could encourage "policy slippage" among reformers and provide ammunition for legislators opposed to funding debt relief in countries such as the US. "There is an enormous fear that if this process does not go right, we'll be hard pressed to get future funding for debt relief or needed levels of aid," a Washington source says.
Yet without more flexibility, fewer of the countries coming up for review will qualify. Those approaching the decision point have more patchy track records than countries which already have qualified. The new group includes Guinea, which has fallen short on some reforms; Rwanda, which has recently been involved in conflict with neighbouring Democratic Republic of Congo; and Guinea-Bissau, where progress has been delayed by domestic conflict. Cameroon, Chad, Gambia, Guyana, Malawi, Nicaragua and Zambia also are coming up.
Greater flexibility also should facilitate quicker debt relief to countries emerging from more protracted conflicts. Officials now have slated Ethiopia, which has just ended a war with Eritrea, as a possible candidate for next year. Back in 1996, Ethiopia was viewed as an early qualifier, until conflict blew its economic policies off course.
The Bank already has shown flexibility on the other key decision-point condition, the interim Poverty Reduction Strategy Paper (PRSP). In principle, Bank guidelines, set out in the Review of Implementation, now say a government should indicate its overall strategic goals and programmes to reduce poverty and "define an action plan that would eventually lead to the articulation and adoption of a PRSP in a participatory process." In practice, some interim PRSPs are "only broad statements of intent," according to a recent IMF report to its Executive Board.
Over the past year, the Bank and IMF have shifted more of the burden of PRSP preparation to the second part of the HIPC process -- the interim period between the decision point and completion. The shift has been welcomed by some debt lobbyists, who say that it gives governments more time to consult civil society and anti-poverty groups, hopefully yielding better PRSPs with a greater sense of national ownership. However, they add, more debt relief should be given during the interim period. Others complain the process is still burdened with excessive conditions, leading to unjustified delays in final debt reduction.
The Review of Implementation notes that countries already past the decision point should take an average of 15 months to reach completion. While the earliest of these cases are expected to average less than a year, more recent qualifiers, such as Tanzania and Mauritania, may average up to two and a half years.
HIPC: donors extend deadline ... and dally on additional fundingIn addition to other changes in HIPC, creditors will hold the initiative's doors open for new entrants until 2002, instead of closing them at the end of this year, as originally projected. So far, 34 countries have met the basic entry requirements of having some form of IMF- or World Bank-supported reform programme in place, leaving 7 of the original 41 potentially eligible countries outside the process. These are Angola -- which is not expected to qualify for HIPC assistance because its debt will likely be deemed "sustainable" after traditional bilateral and commercial relief is given -- Sudan, Democratic Republic of Congo, Somalia, Liberia, Burundi and Myanmar. The latest tally of HIPC's total costs has been put at $28.6 bn, with relief for the first 20 countries projected to cost around $18.3 bn. "I think the immediate needs -- subject to the passage by the US Congress of the US contribution -- are probably met," World Bank President Wolfensohn said in September. Yet raising the funds, even for the first group, is not going smoothly. There have been delays in securing commitments from some non-Paris Club bilateral creditors -- which were expected to contribute 25 per cent of the $18.3 bn -- as well as from commercial creditors (3 per cent). Moreover, some of the poorer bilateral creditors are themselves candidates for HIPC relief. Creditor officials propose to deal with the problems on a case-by-case basis and pledge to work "flexibly and creatively towards solutions." -- C.K. |
