|
 The
International Response to the Debt Crisis in 1996 was to set up
the controversial HIPC initiative (Heavily
Indebted Poor Country Initiative) to relieve heavily indebted
countries of their debt burden......below is a guide to this process
as well as a definition of some HIPC terms.
The World Bank and IMF
launched the HIPC initiative in 1996 so that countries owing them
money could see their debt repayments reduced to a financially affordable
level. It relies on the governments of creditor countries contributing
their full share to a debt relief fund, while each country applying
for assistance begins to follow a set of economic policies approved
by the IMF. Before receiving eventual full debt relief from the
HIPC fund, the government of the indebted country must demonstrate
that it has established these policies and can develop projects
for reducing conditions of poverty among its people.
The
HIPC Process
The first step by the IMF and World Bank is to carry out
an analysis of each nation’s level of
external debt in relation to its income from exports of goods and
services. If the sum determined is more than 1.5 times that of export
revenue, the debt is judged to be unsustainable and the country
may become eligible for HIPC assistance. This decision also depends
on certain conditions in the country, as indicated by annual assessments
of public policy, levels of social inclusion, and institutional
management. Persistent and serious difficulties such as civil unrest
or governance challenges present a barrier for the country –
at present, there are ten nations which have not been able to progress
into the HIPC programme due to conflict or political instability.
This is a significant problem because the need for widespread reconstruction
following conflict creates pressing demands on government budgets
and is likely to lead to more loans being taken out in the effort
to cover costs.
Poverty
Reduction Strategies
During the first stage of their application
the government of the indebted country works to produce a Poverty
Reduction Strategy Paper (PRSP) detailing their planned programmes
for reducing poverty and increasing sustainable economic growth.
This should be achieved in consultation with civil society representatives
(eg. churches, trade unions, pressure groups, social research institutions)
and it could include policies for improving governance, or realistic
funding levels for new economic plans.
Decision
point
Following assessment of the progress made
with policy development, the executive boards of the World Bank
and IMF formally decide on a country’s eligibility and the
international community commits to an agreed target for debt reduction.
From this point, the debt service payments of any eligible country
will begin to be provided from the HIPC fund.
Completion
point
Countries must maintain economic stability,
carry out the key structural and social reforms agreed at decision
point, and implement a Poverty Reduction Strategy satisfactorily
for at least one year. Once a country has met these criteria, it
can reach its completion point, at which time lenders are expected
to provide the full relief committed at the decision point. So far
18 countries have reached completion point.
Poverty
and Social Impact Analysis
PSIA is an assessment of the link between
a nation’s new policies and any changes in the welfare of
its population, particularly those living in conditions of poverty;
for example in Mozambique the government has surveyed the impact
of reforms in education costs on levels of sustained primary school
enrolment. PSIA is widely carried out in the utilities, public sector,
agriculture, and trade sectors, and ideally it helps the country
to expand its capacity for social and economic analysis.
For more information on the HIPC process please
click below to visit the
World Bank Debt Department
| 
