Abstract

The traditional mechanisms for dealing with the debt problems of low-income countries are sufficiently robust to deal with the debt burden of many HIPCs and to reduce their external debts to sustainable levels (see definition below). As noted earlier, the external positions of the HIPCs vary widely and indeed some countries such as Ghana, Kenya, and the Lao People’s Democratic Republic have never received concessional reschedulings from the Paris Club. Others, such as Equatorial Guinea and Vietnam, are unlikely to need the full use of traditional debt-relief mechanisms in order to reach debt levels that are sustainable. However, even with sound economic policies and full use of traditional mechanisms for rescheduling and debt reduction and the continued provision of concessional financing, a number of countries are not expected to reach sustainable levels of debt within a reasonable period of time. To deal with this problem, the IMF and World Bank jointly proposed and put in place in September 1996 the HIPC Initiative that aims at reducing the debt burdens of all eligible HIPCs to sustainable levels, provided they adopt and pursue strong programs of adjustment and reform. The Initiative builds on instruments available to the international community to deal decisively with the debt problems of the low-income countries and allows them to exit, once and for all, from the rescheduling process.