Debt Relief for the Poorest: An Oed Review of the Hipc by Madhur Gautam

By Madhur Gautam

The seriously Indebted terrible nations (HIPC) Debt Initiative used to be designed to alleviate the excessive exterior debt of a few of the world's poorest international locations. The Initiative used to be installed position by means of the realm financial institution and the overseas financial Fund (IMF) in 1996 and greater in 1999. The HIPC Debt Initiative addresses a key challenge to monetary progress and poverty relief, however it additionally comprises a number of and overly-ambitious pursuits. This paintings is an self sufficient evaluate which assesses the development and clients of the HIPC Debt Initiative reaching its goals.

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By Madhur Gautam

The seriously Indebted terrible nations (HIPC) Debt Initiative used to be designed to alleviate the excessive exterior debt of a few of the world's poorest international locations. The Initiative used to be installed position by means of the realm financial institution and the overseas financial Fund (IMF) in 1996 and greater in 1999. The HIPC Debt Initiative addresses a key challenge to monetary progress and poverty relief, however it additionally comprises a number of and overly-ambitious pursuits. This paintings is an self sufficient evaluate which assesses the development and clients of the HIPC Debt Initiative reaching its goals.

Show description

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An excessive dlebt stock is the "debt overhang" hypothesis. 8 This was the straightfcrward strategic rationale for the Furthermore, the positive net transfers have been maintained through a complex and inefficient restructuring and negotiation process (see Annex F). The uncertainty surrounding HIPC Initiative as ori-ginally conceived ard operationalized (World Bank ard IMF 1998, 1999). But as cliscussed in Annex F, this has not been clermonstratecl coI1vincingly for the HIPCs. Low clomestic investment, capital flight, and limited flows of boreign direct investment reflect a combination of factors affectinig the process and the general inefFiciency associated with high debt stocks can have a negative influence on both the level of investrrent a id the effective use of existing capacity.

It would seem, then, that 30 to 40 percent would he a good target to bring the HIPCs to a position comparable to that of other poor countries. Based on the NPV of debt reductions offered by the E-HIPC, the average NPV of debt-to-GDP is expected to be reduced to 30 percent. Thus, although the NPV of debt-to-GDP ratio is not explicitly used as an in- that "ensures" debt sustainability with any certainty. The ratios are composites of variables subject to the future decisions and behavior of the country and its creditors, in the case of the debt stock, and unpredictable exogenous factors, in the case of exports.

Within the World Bank, concern was already growing about the rising debt problem for a large number of its poorest borrowers, particularly in the Africa Region. At first the voices were disjointed; they were also discounted under the presumption that the poor countries had a shortterm cash-flow constraint that was readily amenable to policy reform. The major tool in this strategy was structural adjustment programs, which provided the resources to get through the short-run problems and targeted muchneeded policy reforms.

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