- International Monetary Fund
- Published Date:
- January 1999
Glossary of Terms
The following terms are used throughout the pamphlet. For a more detailed glossary, see IMF, Official Financing for Developing Countries, World Economic and Financial Surveys, February 1998 (Appendix II).
Bilateral creditors. These are government creditors, whose claims are loans extended, or guaranteed, by governments or official agencies, such as export credit agencies. Certain official creditors participate in debt reschedulings under the aegis of the Paris Club (see below).
Brady Plan. An approach adopted in the late 1980s to restructure debt of developing countries to commercial banks, which emphasizes voluntary market-based debt- and debt-service-reduction (DDSR) operations. The cornerstone of DDSR operations is some combination of a buyback at a discount and the issuance of “Brady bonds#x201D; by the debtor country in exchange for banks’ claims. Such operations complement countries’ efforts to restore external viability through the adoption of medium-term structural adjustment programs supported by the IMF and other multilateral and official bilateral creditors.
Cologne terms. Concessional debt reduction agreed by the Paris Club in 1999 as part of the enhanced Initiative for Heavily Indebted Poor Countries. Under these terms, Paris Club creditors agree on a case-by-case basis on a net present value debt reduction of up to 90 percent on pre-cutoff date commercial (non-ODA) debt, or more if this is required in the context of equal burden sharing (after traditional debt-relief mechanisms) with multilateral creditors to achieve debt sustainability in a particular country case.
Completion point. A point at which the country concerned receives the bulk of its assistance under the HIPC Initiative, without any further policy conditions. The timing of the completion point depends:
- under the initial framework of the HIPC Initiative, on the completion of a second track record period of good performance under adjustment programs supported by the IMF and the World Bank; or
- under the enhanced Initiative, on the country’s implementation of pre-agreed key structural reforms including the PRSP (floating completion point).
Debt service-to-export ratio. Scheduled debt service (interest and principal payments due on public and publicly guaranteed debt during a year) for the same coverage of debt as in the NPV debt-to-export ratio, expressed as a percent of exports for that year.
Debt sustainability. Under the original HIPC Initiative, debt sustainability targets were decided on a country-specific basis in the range of a 200-250 percent NPV of debt-to-export ratio; for highly open economies (with export-to-GDP ratios of at least 40 percent) and which raised more than 20 percent of GDP by way of revenues, a lower target could be established consistent with a NPV debt-to-revenue ratio of 280 percent. Assistance under the Initiative was calibrated to reach these targets at the completion point. Under the enhanced HIPC Initiative, a single NPV of debt-to-export target of 150 percent was agreed (as opposed to the earlier range) and the fiscal target was lowered to 250 percent of NPV of debt-to-revenue ratio, with the eligibility thresholds reduced to 30 percent for the export-to-GDP ratio and 15 percent for the revenue-to-GDP ratio. In addition, these targets were to be calculated at the decision point (rather than the completion point as was the case under the original framework of the Initiative).
Debt sustainability analysis. A study undertaken jointly by staff of the IMF and the World Bank and the country concerned, in consultation with creditors, at the decision point. On the basis of this analysis, the country’s eligibility for assistance under the HIPC Initiative is determined.
Decision point. A point at which a HIPC completes its first (three-year) track record of good performance under adjustment programs supported by the IMF and the World Bank, and when, based on the debt sustainability analysis, a country’s eligibility for assistance under the HIPC Initiative is determined.
Heavily indebted poor countries (HIPCs). As used initially for analytical purposes: a group of 41 developing countries, including 32 countries with a 1993 GNP per capita of $695 or less and 1993 present value of debt to exports higher than 220 percent or present value of debt to GNP higher than 80 percent. This group also included nine countries that have received concessional rescheduling from Paris Club creditors (or are potentially eligible for such rescheduling). However, this concept evolved in the course of implementing the Initiative to include all countries eligible for the Enhanced Structural Adjustment Facility (ESAF) and eligible only for concessional financing from the World Bank (IDA-only) that face unsustainable debt situations even after traditional debt-relief mechanisms are applied fully. Countries must also undertake adjustment programs supported by the IMF and the World Bank.
HIPC Initiative. Framework adopted jointly by the IMF and the World Bank in 1996 for action to resolve the external debt problems of heavily indebted poor countries. The Initiative envisages comprehensive debt relief by the international financial community—including the multilateral institutions—to achieve debt sustainability, provided a country builds a track record of strong policy performance. The framework was strengthened in 1999 (enhanced HIPC Initiative) to provide faster, deeper, and broader debt relief.
HIPC Trust Fund. The HIPC Trust Fund, established by the World Bank, provides debt relief to eligible HIPCs on debt owed to participating multilaterals. It either prepays, or purchases a portion of the debt owed to a multilateral creditor and cancels such debt, or pays debt service as it comes due. The HIPC Trust Fund is administered by the IDA and receives contributions from participating multilateral creditors and from bilateral donors. Contributions can be earmarked for debt owed by a particular debtor or to a particular multilateral creditor. Donors can also provide contributions to an unallocated pool and would participate in decisions regarding the use of these unallocated funds. The overall structure of the Trust Fund allows multilateral creditors to participate in the Trust Fund in ways consistent with their financial policies. It also addresses the resource constraints for certain multilateral creditors and the potential requirements of donors.
IMF emergency and postconflict assistance. Since 1962, the IMF has provided emergency assistance in the form of outright drawings to help members overcome balance of payments problems arising from sudden and unforeseeable natural disasters. This assistance was extended in September 1995 to cover certain postconflict situations. Assistance for countries in postconflict situations, as well as for natural disasters, is normally limited to 25 percent of quota and is available only if the member intends to move within a relatively short time to an upper credit tranche arrangement with the IMF.
Interim Assistance. Debt relief provided between the decision and completion points. Under the enhanced HIPC Initiative, the Bank and IMF have agreed to join the Paris Club in providing such debt relief.
International Development Association (IDA). IDA is the concessional lending arm of the World Bank Group, providing financing to low-income member countries.
International Development Goals for 2015. As a major step toward concerted international action for development, the OECD and the United Nations have agreed to focus on a series of key goals in partnership with developing countries. These goals have been endorsed by major international conferences. They give an integrated world view of human wellbeing in its economic, social, and environmental aspects. The set is continuously developed and updated to show results achieved and the efforts to be made to reach these goals up to the year 2015. These goals include, among other things, reduction in the proportion of people living in extreme poverty in developing countries by at least one half by 2015; achievement of universal primary education in all countries by 2015; reduction in death rates for infants and children under the age of five years in each developing country by two thirds the 1990 level by 2015; and reduction in rate of maternal mortality by three fourths between 1990 and 2015.
Jubilee 2000. Jubilee 2000 is an international grass roots movement with a presence in more than 40 countries advocating a debt-free start to the millennium for indebted poor countries.
Lyon terms. Concessional debt reduction agreed by the Paris Club in 1996 as part of the HIPC Initiative. Under these terms, Paris Club creditors can agree on a case-by-case basis to reduce pre-cutoff date commercial (non-ODA) debt up to 80 percent in NPV terms.
Multilateral creditors. These creditors are multilateral institutions such as the IMF and the World Bank, and other regional multilateral development banks, such as the African Development Bank and the Inter-American Development Bank.
Naples terms. Concessional debt-rescheduling terms for low-income countries approved by the Paris Club in December 1994 and applied on a case-by-case basis. Countries can receive a reduction of pre-cutoff date commercial (non-ODA) debt of up to 67 percent in net present value terms. These terms, along with comparable action by other non-multilateral creditors, are known as traditional debt-relief mechanisms.
Net present value (NPV) of debt. The sum of all future debt-service obligations (interest and principal) on existing debt, discounted at the market interest rate. Whenever the interest rate on a loan is lower than the market interest rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element.
Net present value (NPV) of debt-to-export ratio. Net present value (NPV) of outstanding public and publicly guaranteed external debt at the end of the period, expressed as a percent of exports of goods and services.
Official development assistance (ODA). ODA is defined by the Organization for Economic Cooperation and Development (OECD) as grants or loans extended by a government on concessional terms to developing countries with the promotion of economic development and welfare as the main objective. The minimum grant element is 25 percent based on a fixed discount rate of 10 percent.
Off-market gold sales. In September 1999, the IMF’s Executive Board agreed in principle to conduct a one-time, off-market transaction of up to 14 million fine ounces of gold. On the basis of market prices, the IMF will sell gold to some central banks of member countries with repayment obligations to the IMF, with the understanding that these central banks will use the gold to make the repayment. These transactions will allow the IMF to place an amount of the sales proceeds equivalent to SDR 35 an ounce in the general resources account, and the balance will be placed in a special account with the interest proceeds benefiting the ESAF-HIPC Trust. The net effect of these transactions will leave the IMF’s holdings of physical gold unchanged as no gold will be released to the market. As a result, there will be no impact on the supply and demand balance in the gold market.
Paris Club. Informal group of creditor governments mainly from industrial countries (that is, the OECD) that has met on a regular basis in Paris since 1956 with the French Treasury providing the Secretariat. Creditors meet with debtor countries to agree with them on restructuring their debts as part of the international support provided to a country that is experiencing debt-servicing difficulties and is pursuing an adjustment program supported by an arrangement with the IMF.
Poverty Reduction and Growth Facility (PRGF). This facility agreed in late 1999 will replace the Enhanced Structural Adjustment Facility (ESAF) as the IMF’s concessional lending arm; its goal is to make poverty reduction efforts among low-income members a key and more explicit element of a renewed growth-oriented economic strategy. The cornerstones of the new approach, which will continue to be based on sound macroeconomic policies, would include a comprehensive, nationally owned Poverty Reduction Strategy Paper (PRSP), social and sectoral programs aimed at poverty reduction, greater emphasis on good governance, and priority to key reform measures critical to achieving the member government’s social goals.
Poverty Reduction Strategy Paper (PRSP). In the context of strengthening the link between debt relief and poverty reduction, in September 1999 the Executive Boards of the IMF and the World Bank agreed to introduce Poverty Reduction Strategy Papers to be prepared by national authorities in close collaboration with World Bank and IMF staff. These papers would be country-driven; developed transparently with broad participation of elected institutions, stakeholders, including civil society, key donors, and regional banks; include monitorable outcome indicators; and have a clear link with the agreed International Development Goals for 2015. PRSPs will provide the basis for all IDA and IMF lending to low-income countries and will gradually replace current Policy Framework Papers.
Structural Adjustment Facility (SAF)/Enhanced Structural Adjustment Facility (ESAF). The SAF, established in 1986 and no longer operational, and the ESAF, established in 1987 and extended and enlarged in 1993, are the concessional loan windows of the IMF. These facilities are available to low-income member countries.
Traditional debt-relief mechanisms. See Naples terms.