Annex I. Debt Relief for the Protracted Arrears Cases
1. As described in the main paper, delivering debt relief under the MDRI to the three protracted arrears cases—Liberia, Somalia, and Sudan—will require special provisions. Under the MDRI, members are expected to remain current on obligations falling due to the Fund and lending after the January 1, 2005 cutoff date is not eligible for MDRI assistance. However, all Fund credit to the three arrears cases is overdue and immediately payable; and members cannot reach either the HIPC decision or completion point (and thus cannot qualify for MDRI assistance) until after all arrears to the Fund have been cleared.25 Arrears clearance would extinguish the debt of the three protracted arrears cases outstanding at the cutoff date. It would also very likely be quickly followed by large new Fund disbursements, with the result that these members would continue to have substantial obligations to the Fund that would not qualify for MDRI relief. Further consideration therefore needs to be given to how to permit these three protracted arrears cases to benefit from the MDRI while ensuring consistent treatment of members. As discussed below, the two most feasible options would involve (i) eliminating the constraint posed by the cutoff date, by allowing for limited “grandfathering” of debt held by the protracted arrears countries as of the cutoff date, or eliminating the requirement that countries with arrears to the Fund cannot reach the HIPC decision or completion points, in cases where they are satisfactorily performing under a rights accumulation program (RAP).
Limited grandfathering—One alternative would be to exempt the protracted arrears cases from the cutoff date with respect to the amount of Fund credit outstanding to them as of that date, while at the same time creating a notional repayment schedule pursuant to which the amount of this grandfathered debt would be gradually reduced over time. One could assume, for example, that the arrears as of end-2004 are replaced with a notional PRGF loan as of that date, or somewhat earlier, which would create a hypothetical repayment profile for these countries. This would place the protracted arrears cases on a more equal footing with other pre-decision point cases while giving them a grace period of up to 5½ years on principal payments. The full amount of grandfathered debt would remain eligible for MDRI relief during the grace period; afterwards, the amount of debt eligible for MDRI relief available would decline and would fall to zero by the end of the ten-year maturity period of PRGF loans. This option removes the automatic ineligibility for MDRI relief that the cutoff date poses for the protracted arrears cases, while at the same time creating some incentives for these countries to reach their completion points quickly.
Modified RAP Approach—Another approach would be to eliminate the requirement that members must clear their arrears to the Fund before reaching the HIPC decision or completion point, in cases where the member is successfully implementing a RAP. Under this approach, the member would enter a RAP prior to the decision point and accumulate “rights” to future debt relief as it reaches completion point.26 The cost of debt relief would be covered by bilateral contributions, for which commitments would need to be made at the time of Board approval of the RAP. Unlike the traditional approach, no bridge loans would be necessary to settle arrears, and the Fund would not need to enter into a new financial arrangement with the member prior to the decision point. The outstanding amount of arrears, though, may be reduced, as the member is also expected to make payments to the Fund in line with its payment capacity and that, at a minimum, are sufficient to meet new obligations falling due. This approach would put these countries on a more similar footing with other HIPCs, which are also expected to make payments to the Fund before they reach the completion point. Second, it would not require bridge loans for arrears clearance nor new Fund lending after the arrears are settled. Third, the rights approach is a tested instrument and well known to the members in protracted arrears to the Fund and to the donor community. On the other hand, this approach would not allow the Fund to provide balance-of-payment support to these countries before they reach the completion point. Moreover, this approach would mark an important departure from existing policies, in that it would change the assessment of the kind of program (i.e., a program with no arrears to the Fund) that the Fund has so far required be in place before a member could qualify for commitments or disbursements of HIPC assistance.
2. The cost of full debt relief for the three members in protracted arrears will amount to SDR 1.8 billion, corresponding to the stock of arrears outstanding to the Fund as of end-2004. This figure could vary marginally, depending on whether these countries will be able to make payments sufficient to cover forthcoming obligations prior to the completion point.
Annex II. Countries that could be Eligible under the Sunset Clause of HIPC Initiative
1. Member countries that could become eligible for HIPC assistance under the extended sunset clause, will also be eligible for MDRI debt relief once they reach their completion point. Donors have committed to finance the debt relief of sunset clause countries on a fair burden-share basis. A preliminary list of thirteen potential countries was presented to the Board in September. These include six of the pre-decision point countries already identified (Central African Republic, Comoros, Republic of Congo, Côte d’Ivoire, Lao PDR and Togo), plus the three protracted arrears cases (Liberia, Somalia, Sudan), as well as Eritrea, Haiti, Kyrgyz Republic, and Nepal.
2. The list of potentially eligible countries under the extended sunset clause could be expanded by five additional countries (Bangladesh, Bhutan, Myanmar, Sri Lanka, and Tonga). However, detailed loan-by-loan data is needed to make a final determination. Fund and Bank staffs are providing technical assistance to these countries with data reconciliation and missions to some of them are planned already. Outstanding Fund debt for these five countries amounted to SDR 338 million at end-2004.
3. A final list of sunset clause countries together with updated cost estimates will be presented to the Boards of the Fund and the World Bank in the Spring 2006.
The G-8 Debt Cancellation Proposal and Its Implications for the Fund—Further Considerations (9/19/05).
All debt and resource numbers are given in end-2005 NPV terms.
In the supplement, the term “main paper” will refer to The G-8 Debt Cancellation Proposal and Its Implications for the Fund—Further Considerations (9/19/05).
MDRI relief is used in this paper to refer to debt relief after applicable debt relief under the HIPC Initiative for all HIPC-eligible countries, unless otherwise specified.
As noted in The G-8 Debt Cancellation Proposal and Its Implications for the Fund—Further Considerations (9/19/05), however, SDA resources for HIPC relief would be available to all members (including sunset and protracted arrears cases) that reach the HIPC decision or completion point, while SDA resources for MDRI relief would be available to all qualifying members that have incomes at or below the threshold. If additional bilateral contributions for costs attributed to the sunset and protracted arrears cases are not immediately forthcoming, this would imply insufficient resources for all qualifying members, but would not mean that qualifying sunset and arrears countries would be ineligible for relief.
Heavily Indebted Poor Countries Initiative—Status of Implementation.
Liberia and probably Somalia (both protracted arrears cases) and Afghanistan, Eritrea, and Nepal (potential HIPC sunset cases) also have per capita incomes below US$380.
Afghanistan and Eritrea (potential HIPC sunset cases) and probably Somalia (a protracted arrears case) also have per capita incomes below US$270.
Afghanistan, Eritrea, Haiti, the Kyrgyz Republic, and Nepal (potential HIPC sunset clause cases) and Liberia and probably Somalia (both protracted arrears cases) also have per capita incomes of US$400 or less.
Staffs from the Bank and the Fund would collaborate closely in the preparation of these assessments, and whenever possible rely on each other’s expertise. The process will be carried out in close collaboration with Fund area departments and World Bank regions. However, as is always the case, the decision of eligibility would be taken by each Board separately.
The Bank would take the lead, in consultation with FAD, in updating, as needed, diagnostic assessments of public expenditure management systems and in designing remedial measures to compensate for any deterioration in these systems since the completion point.
While not analogous, it should be noted that under the enhanced HIPC Initiative a minimum of 10 to 12 months of track record under a Fund arrangement has generally been required between decision and completion point.
For non-HIPCs, no comprehensive assessment of PEM systems has been undertaken.
See “IDA Eligibility, Terms and Graduation Policies,” IDA Report No. 26498, 01/01/2001.
See “Proposed Second Amendment to the Articles of Agreement, A Report by the Executive Directors to the Board of Governors (1976), p. 47.
See, e.g., Decision Point Decision for São Tomé and Príncipe, 12/20/00 (no HIPC assistance was committed to São Tomé and Príncipe at the decision point since the member had no eligible debt to the Fund at that time).
Section IX of the PRGF Trust Instrument provides as follows: “The Fund may amend the provisions of the Instrument, except this Section and Section I, paragraphs 1 and 2; Section III, paragraphs 4 and 5; Section IV, paragraphs 4 and 6; Section V; Section VI; Section VII, paragraphs 2(a) and (b); Section VIII, paragraph 2(b).”
Regarding the interpretive implications of operational decisions, see Sir Joseph Gold, Interpretation: The IMF and International Law (1996), at p. 3: “Every action of the IMF every day expresses or implies some interpretation of its law. A common belief is that interpretations are decisions of the organization taken under the provisions that govern authoritative interpretation or other decisions that explicate the law of the IMF but which are considered informal because they are not taken under the provisions on authoritative interpretation. Even if an action is not in itself a decision of the one or the other kind, or is not expressly justified by reference to a decision of either kind, the action will imply a view about the meaning of some element or elements of the IMF’s law. If this analysis were not true, the conclusion would have to be that the organization takes actions with the understanding that they are not in accordance with applicable law or are taken without concern as to their validity.”
This interpretation is supported by Sir Joseph Gold, ibid., at p. 78 (“The excepted provisions may be subject to amendment with the consent of lenders, although this is not said”).
Various precedents are identified in footnote 39 of The G-8 Debt Cancellation Proposal and Its Implications for the Fund—Further Considerations (9/19/05).
This conclusion also reflects the important distinction between all PRGF eligible members and those PRGF-eligible members to whom a commitment or disbursement of resources has been made under a PRGF arrangement. Specifically, the Fund’s authority to amend the PRGF Trust for the purpose of changing the use of, or removing contributor resources held in, the Subsidy Account may be constrained to the extent that such actions would prevent the Fund from providing to members with outstanding PRGF loans or existing PRGF arrangements the current level of subsidies that resources in the Subsidy Account would have permitted. However, to the extent that such an entitlement exists, it would arise from the commitment made by the Fund under the relevant PRGF arrangements, and not from the terms of the PRGF Trust Instrument. In particular, in the context of a PRGF arrangement (and unlike the GRA), the importance of the Fund’s commitment under an arrangement relates not only to the availability of Fund resources to the member, but also to the availability of subsidies that enable the concessional interest rate under the PRGF. This does not mean that the Fund has an obligation to obtain subsidies if none are available in respect of already committed resources; it may suggest, however, that there are limits on the Fund’s ability to agree to a transfer of resources that were previously available for subsidy purposes. In any event, there would be sufficient subsidies remaining under the overall MDRI operation to continue the subsidization at current rates of all currently outstanding PRGF loans plus all outstanding commitments under existing PRGF arrangements.
Section VI of the PRGF-HIPC Trust Instrument reads as follows: “The Fund may amend the provisions of the Instrument, except that any amendment of Section I, paragraph 2, Section IV, Section V and this Section shall require the consent of all contributors to the Trust.”
By analogy, general principles of trust law—at least in the United States—support the interpretation that, given the Fund’s broad authority to terminate the Trust, it does not need the consent of all PRGF–eligible members to amend it. See, e.g., American Law Reports, Annotated, Second Series (62 ALR2d), 1958, p. 1413: “Ordinarily a general power to revoke the trust will be interpreted as authorizing the settlor not only to revoke the trust in part by withdrawing a part of the trust property from the Trust..., but also to modify the terms of the trust, and it will be unnecessary for the settlor first to revoke the trust and then to create a new trust.” See also, Section 602(a) and Commentary of the U.S. Uniform Trust Code (“A power of revocation includes the power to amend”).
Following the onset of the HIPC Initiative in 1996.
See EBS/01/122, 7/23/01, p. 12 (no commitments or disbursements of HIPC assistance can be made when a member is in arrears to the GRA, PRGF Trust or SDR Department, as the PRGF-HIPC Instrument requires that members have established a track record of performance under Fund-supported programs before reaching the decision or completion point, and “payment arrears to the Fund represent nonobservance of program requirements” that precludes consideration of decision or completion point requests).
RAPs already count towards the track record for decision points under the HIPC Initiative; however, as noted above, even in cases where a RAP provides the track record, members are required to clear arrears before they can actually reach the decision point.