News Brief No. 99/33

News Brief: IMF Managing Director Backs Cologne Summit Declaration on HIPC

June 22, 1999

IMF Managing Director Backs Cologne Summit Declaration on HIPC

"I welcome the strengthening of the Heavily Indebted Poor Country Initiative (HIPC) proposed by the leaders of the Group of Seven nations last weekend in Cologne," said International Monetary Fund Managing Director Michel Camdessus. "We will do our utmost to secure agreement on the strengthened Initiative and its financing by the annual IMF-World Bank meetings in September. The enhanced Initiative should enable HIPCs who themselves pursue policies intended to foster sustainable development and poverty reduction to make an exit from unsustainable debt burdens. An enhanced Initiative framework should provide a strong incentive for the adoption of such policies. It is particularly important that adequate financing be provided for all multilateral institutions to enable them to provide debt relief on their claims as required under the Initiative," he added.

As an indication of the strengthening of the Initiative, the IMF estimates that the overall costs in net present value will more than double to US$27.5 billion from the current level of around US$12.5 billion. The bilateral forgiveness of official aid would be additional to this.

The IMF is ready to play its part in financing its share of the costs of an enhanced Initiative through gold sales. "IMF management, which initially proposed gold sales in September 1996, is committed to conducting such sales, once agreed, in an orderly and careful manner which would not disrupt the gold market," Mr. Camdessus said. "As agreed under the HIPC framework, gold sales would need to be supplemented by further bilateral contributions to meet the IMF's share of costs under an enhanced Initiative. Consultations will be conducted during the summer in order to secure the full financing needed."

Mr. Camdessus underlined that an enhanced HIPC Initiative, to be effective, needs to be supported by wider policies, namely:

· policies in HIPCs designed to promote growth, sustainable development, and poverty reduction, including lower military spending and higher social spending, and a tighter link between debt relief and education and health spending, which will be a particularly relevant feature of the new scheme;

· increased aid flows in support of such policies;

· restraint on commercial export credit lending to HIPCs, with no such loans for military purposes; and

· unrestricted access to industrial country markets for the export products-which are largely raw materials and agricultural products-of low-income countries.