Public Information Notice: IMF Executive Board Discusses the Enhanced HIPC Initiative Creditor Participation Issues

April 3, 2003

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

On March 12, 2003, the Executive Board of the International Monetary Fund (IMF) discussed creditor participation issues of the Heavily Indebted Poor Countries (HIPC) Initiative.


The HIPC Initiative was launched by the IMF and the World Bank in 1996 as the first comprehensive effort to eliminate unsustainable debt in the world's poorest, most heavily indebted countries. It was enhanced in the fall of 1999, and aims at reducing the net present value (NPV) of debt at the decision point to a maximum of 150 percent of exports, or for small open economies, 250 percent of government revenue.

Eligible countries need to demonstrate the capacity to use prudently the assistance granted by establishing a satisfactory track record under IMF- and International Development Association-supported programs. A key input in this process is the poverty reduction strategy paper (PRSP), prepared with broad participation of civil society, and intended to serve as the basis for implementing the country's poverty reduction strategy.

Once a decision is made to grant HIPC relief, and provided that the country stays on track with its IMF and IDA-supported program, the IMF, IDA, Paris Club, and some other creditors grant relief on current maturities. When specific measures needed to strengthen poverty reduction efforts and macroeconomic management have been implemented, the IMF and IDA provide the remainder of the committed debt relief, and Paris Club creditors reduce the stock of debt as agreed; other multilateral, bilateral, and commercial creditors also contribute to the debt relief on comparable terms.

Some three-dozen HIPCs are expected to qualify for assistance under the enhanced HIPC Initiative, the great majority of which are sub-Saharan African countries. Debt relief packages are now in place for 26 countries under the enhanced HIPC Initiative framework (Benin, Bolivia, Burkina Faso, Cameroon, Chad, Ethiopia, The Gambia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tome and Príncipe, Senegal, Sierra Leone, Tanzania, Uganda, and Zambia), with total committed assistance estimated at some US$25 billion in NPV terms, or about US$41 billion in nominal terms. Of these countries, eight ( Benin, Bolivia, Burkina Faso, Mali, Mauritania Mozambique, Tanzania, and Uganda) have reached their completion points under the enhanced Initiative, at which time debt relief was delivered unconditionally. In combination with traditional debt relief and pledges of additional bilateral debt forgiveness, the external indebtedness of these 26 countries will be reduced by about two-thirds in NPV terms (from US$62 billion to US$22 billion), bringing their indebtedness to levels below the average for all developing countries. For the 26 countries taken together, overall debt service due during 2001-05 is expected to be lower by about one third relative to annual debt service payments recorded in 1998-99.

The last review of the implementation of the enhanced HIPC Initiative by the Executive Board took place in September 2002. Amongst other items, that discussion included issues related to the status of creditor participation. At the IMF-World Bank Annual Meetings during September 28-29, 2002, the IMFC noted that the HIPC-to-HIPC debt relief and creditor litigation issues raised serious issues that should to be addressed. The paper discussed at this meeting of the Executive Board represents a follow up to the earlier discussions in the International Monetary and Financial Committee and the Executive Board on these issues.

Executive Board Assessment

Directors reaffirmed the importance of broad and equitable participation by all creditors in the implementation of the HIPC Initiative, and regretted that full participation remains elusive. They noted that moral suasion is the most effective instrument available to the Fund and the World Bank to encourage creditor participation, and supported the measures taken by the staffs to widen participation. They encouraged the staffs to continue discussions with non-participating creditors and to report on the status of creditor participation, including on creditor litigation cases, in the HIPC Initiative Status of Implementation reports. They also suggested that more detailed information on the status of creditor participation be made available to the general public.

With regard to creditor litigation, a number of Directors believed that setting up a technical assistance trust fund to help HIPCs reach fair and equitable settlement could be helpful, but most Directors agreed that it would not be appropriate for the Fund to administer such a fund since this would be inconsistent with the principle of Fund neutrality and impartiality in disputes among members or between members and third parties. Directors encouraged staff to continue to give prominent coverage to creditor litigation issues in periodic progress reports on the HIPC Initiative and urged the governments of the creditor countries to do likewise. Some Directors also encouraged staff to further reflect on the ways and instruments that could help HIPCs facing litigations initiated by their creditors. They supported efforts to discourage the sale of HIPCs' debt in the secondary market, and many supported the proposal by World Bank staff to explore ways in which the Debt Reduction Facility for IDA-only Countries could be adjusted to assist HIPCs to buyback their remaining commercial debt. However, some other Directors expressed reservations about an expansion of this facility.

On HIPC-to-HIPC debt relief, Directors took note of the fact that these claims are concentrated in a few HIPC creditors, and that some creditors have already made commitments to deliver their share of debt relief under the Initiative. Directors agreed that, where resolution of such outstanding claims is hindered by technical issues, the staff should be ready to provide technical assistance when requested by both parties, to help HIPC creditors and debtors themselves resolve these outstanding technical disputes. Many Directors welcomed the proposal of the World Bank staff to establish and administer a trust fund to channel donor assistance to finance HIPC-to-HIPC debt relief. They agreed that such a trust fund should be used in cases where HIPC creditors are unable to deliver their share of HIPC relief owing to financial constraints, in accordance with the principles and conditions set out by individual donors. Others, however, questioned the need for such a fund given the small size of HIPC-to-HIPC debt and the existence of moral hazard issues.


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