Abstract

Countries affected by the debt crisis of the 1980s received concerted support from the international financial community in the form of Paris Club flow reschedulings (rescheduling of debt service falling due), stock-of-debt operations (reduction in the stock of outstanding debt) under the Brady plan, and adjustment programs supported by the multilateral financial institutions. These measures proved effective in significantly improving the debt situation of many middle-income countries. A number of poor countries, especially those in sub-Saharan Africa, however, continued to face difficulties in meeting their external debt-servicing obligations because of a confluence of factors. These included the accumulation—through, among other things, provision by creditors of official export credits and poor external debt-management strategies in the debtor countries—of significant nonconcessional debt, a deterioration in debtors’ terms of trade, vagaries of weather, protracted civil wars, weak economic policies, and weaknesses in governance.1

Countries affected by the debt crisis of the 1980s received concerted support from the international financial community in the form of Paris Club flow reschedulings (rescheduling of debt service falling due), stock-of-debt operations (reduction in the stock of outstanding debt) under the Brady plan, and adjustment programs supported by the multilateral financial institutions. These measures proved effective in significantly improving the debt situation of many middle-income countries. A number of poor countries, especially those in sub-Saharan Africa, however, continued to face difficulties in meeting their external debt-servicing obligations because of a confluence of factors. These included the accumulation—through, among other things, provision by creditors of official export credits and poor external debt-management strategies in the debtor countries—of significant nonconcessional debt, a deterioration in debtors’ terms of trade, vagaries of weather, protracted civil wars, weak economic policies, and weaknesses in governance.1

The international community increasingly recognized that the unsustainable external debt situation of heavily indebted poor countries was becoming one of the sources of slow economic growth, persistent poverty, and weak social policies in these countries.2 To address this situation, the IMF and the World Bank in September 1996 jointly adopted the HIPC Initiative to reduce the debt burdens of eligible HIPCs to sustainable levels, provided they adopt and carry out strong programs of macroeconomic adjustment and structural reforms.

This pamphlet explains the rationale for, and main features of, the Initiative as originally conceived in 1996 and the implementation of the Initiative through late 1999, and then describes the review process launched in early 1999, which culminated in the approval of a strengthened HIPC Initiative designed to deliver deeper debt relief more rapidly to a wider range of countries. The pamphlet emphasizes the aggregate aspects of the HIPC Initiative. More detailed information on the external debt situations and economic and social polices of individual countries that have entered into the Initiative is available in country-specific HIPC documents, which are posted on the IMF’s website (http://www.imf.org).

1

See Brooks and others, “External Debt Histories of Ten Low-Income Developing Countries: Lessons from Their Experience,” IMF Working Paper No. 98/72, May 1998.

2

A group of 41 developing countries were classified as being heavily indebted poor countries. This group included, for analytical purposes, 32 countries with a 1993 GNP per capita of $695 or less and a 1993 present value of debt to exports higher than 220 percent, or present value of debt to GNP higher than 80 percent. Also included were nine countries that received, or were eligible for, concessional rescheduling from Paris Club official creditors. However, any other country meeting the requirements of the Initiative could also be considered for HIPC Initiative assistance.

The group of 41 countries consisted of Angola, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Congo, Côte d’Ivoire, Democratic Republic of the Congo, Equatorial Guinea, Ethiopia, Ghana, Guinea, Guinea-Bissau, Guyana, Honduras, Kenya, Lao PDR, Liberia, Madagascar, Mali, Mauritania, Mozambique, Myanmar, Nicaragua, Niger, Nigeria, Rwanda, São Tomé and Principe, Senegal, Sierra Leone, Somalia, Sudan, Tanzania, Togo, Uganda, Vietnam, Yemen, and Zambia. Malawi was subsequently added to the group.

Th E HPIC initiative (Revised'99)