FINANCE: Debt Relief Programme Faces Post-Conflict Test

By Emad Mekay Reprint | | Print |

Emad Mekay

WASHINGTON, Apr 25 2002 (IPS) - û A high-profile debt relief programme for the world’s poorest countries is mired in implementation problems and faces tougher times ahead as it moves to deal with conflict-riddled countries, say World Bank officials.

ôWe have difficult cases ahead of us,” Jacob Kolster, Programme Manager for the Highly Indebted Poor Countries (HIPC) initiative, said Thursday. ôProgress is going to be very slow and very difficult as we move forward to bring more countries on board.”

The next stage of the initiative will cover Burundi, Democratic Republic of Congo, Liberia, Sudan, Somalia, and other countries still subject to intense political and communal tension and, on occasion, violence.

ôThere is one common thread among these countries which is conflict, administrations that are rundown, and situations that are very difficult,” Kolster told IPS.

The prospects for HIPC are further complicated by the programme’s relatively poor performance in the 26 countries that already have qualified for relief.

Anti-debt campaigners and several think tanks have complained that HIPC, led by the Bank and International Monetary Fund (IMF), has not helped to rid poor countries of choking debt.

Earlier this week, Bank and IMF staff themselves released a report saying HIPC was largely off track and that this did not augur well for future plans.

Of the 26 countries that have reached their decision point, when creditors agree to ease the debt, only five have graduated to the completion point, when the debt is actually delivered.

Eight to 10 countries will have to grapple with debt problems even after reaching their completion points, the report conceded. This is twice as many as anticipated just a year ago.

ôOf the five countries (that have passed the completion point), two seem to be in a good position to maintain long-term debt sustainability, but the situation of the other two is more mixed,” said the “Status of Implementation of HIPC” report. The fifth country, Burkina Faso, just cleared the finish line this month.

Launched in 1996, the HIPC scheme aims to reduce the debt – particularly that part of the debt owed to multilateral agencies like the Bank and the IMF – of the world’s poorest countries to levels at which creditors think those countries will be able to keep up with repayments.

The IMF’s Executive Board acknowledged Monday that the recent world economic slowdown, coupled with the continued decline in many primary commodity prices, have sapped HIPC’s benefits over the past two years. Weaker demand and prices have hit these countries’ export earnings, throwing off HIPC’s assumptions about the size of repayments governments could afford to make.

Compounding the scheme’s problems, said Kolster, some commercial creditors have balked at taking part in the debt-relief programme.

ôWe are also facing problems with the creditors who are supposed to give debt relief. This is also an implementation problem that we’d have to face,” he said.

The Bank and Fund would study the possibility of extending additional debt relief to countries hit by economic downturns not of their own making, on a case-by-case basis, Kolster added.

The Fund’s executive directors emphasised Monday the relief would not be released to governments deemed to have fallen short in implementing policies agreed with the institution.

Almost all emergency financing that will be considered would take the form of concessional loans or grants. Recipient governments would have to guarantee transparency in borrowing and spending the money.

Canadian Finance Minister Paul Martin said this week debt relief will be on the agenda of the Group of Seven industrialised powers’ finance ministers when they meet in his country in June.