The Group of Eight (G8) leaders agreed at their economic summit meeting held on Sea Island, Georgia, United States, on June 10 to continue providing debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative. The leaders also directed their finance ministers to work with donors, the World Bank, the IMF, and other international financial institutions to provide “topping up” financing to the HIPC Initiative, where necessary.
The HIPC Initiative, established in 1996, included a “sunset clause” to avoid the adverse incentives of a permanent facility, minimize moral hazard, and encourage early adoption of reform programs. The initiative is currently set to expire on December 31, 2004. G8 leaders recognized, however, that the year-end expiry of the sunset clause—which has already been extended three times—would leave several countries with debts in excess of the thresholds set by the initiative.
The Executive Boards of the World Bank and the IMF will meet in July to discuss alternative ways of extending HIPC debt relief. These options are intended to give heavily indebted poor countries more time to put in place the reform programs needed to establish their eligibility for HIPC debt relief. A decision will be made by the World Bank and IMF Boards in September in the context of a review of the most recent progress report on the HIPC Initiative.