Debt Relief for Low-Income Countries: The Enhanced HIPC Initiative

Abstract

Since the onset of the debt crisis in the early 1980s, many heavily indebted poor countries (HIPCs) continue to have difficulty in paying their external debt-service obligations, largely because of exogenous factors, imprudent debt-management policies, and the lack of sustained adjustment or implementation of structural reforms.The international community over the past decade has implemented a wide range of traditional mechanisms destined to provide needed external finance and alleviate the debt burden of these countries.While these traditional mechanisms are sufficient to reduce the external debts of many HIPCs to sustainable levels provided these countries implement sound economic policies, they are likely to be insufficient for a number of countries.To deal with these cases, the World Bank and the IMF have jointly proposed and put in place the HIPC Initiative; the goal is to reduce the debt burdens of all eligible HIPCs to sustainable levels.This pamphlet describes the HIPC Initiative and suggests that it should enable HIPCs to exit from the debt-rescheduling process.It argues that implementation of the Initiative should eliminate debt as an impediment to economic development and growth and enable HIPC governments to focus on the difficult policies and reforms required to remove the remaining impediments to achieving sustainable development.It describes the implementation of the Initiative through the end of September 1997.The authors would like to thank Jack Boorman, Doris Ross, and Christina Daseking, of the IMF's Policy Development and Review Department, and Fred Kilby and Axel van Trotsenburg of the World Bank, for helpful comments.Barbara Dabrowska provided valuable statistical help, and Sulochana Kamaldinni typed numerous drafts as well as the final version of the pamphlet with her customary patience and efficiency.

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