Bolivia, Mauritania, and Uganda have become the first three countries to receive debt-service relief under the enhanced Heavily Indebted Poor Countries’ (HIPC) Initiative, the IMF and the International Development Association (IDA) have announced. Relief for Bolivia and Uganda will amount to $1.3 billion each and for Mauritania, to $1.1 billion. The enhanced assistance will be provided after the three countries, in concert with civil society, adopt strategies to reduce poverty and will help finance social expenditures.

The press release announcing the assistance for Bolivia notes that this country’s macroeconomic performance has improved dramatically over the past decade, with inflation declining from hyperinflationary levels to 3.1 percent in 1999 and official international reserves and foreign direct investment increasing significantly. In addition, the external debt burden, although still high, has eased considerably. Despite these improvements, about 70 percent of Bolivia’s population continues to live in poverty.

Uganda became eligible for debt relief under the enhanced initiative through the effectiveness of its poverty reduction strategy thus far and the authorities’ sustained commitment to macroeconomic stability. Although one of the poorest countries in the world, Uganda reduced its incidence of poverty by 18 percent between 1992/93 and 1996/97. It also increased the net primary school enrollment rate to 94 percent in 1998/99 from 56 percent in 1995/96. The assistance under the enhanced HIPC Initiative is expected to reduce Uganda’s external debt and debt-service burden by $50 million a year over the next 26 years.

Mauritania, according to the IMF press release, “has established a good track record of adjustment and reform on the macroeconomic, social, and political fronts.” The country has implemented structural reforms and achieved fiscal consolidation and, as a result, GDP has grown by about 5 percent a year since 1992, and social indicators have improved significantly. However, 50 percent of the population remains under the poverty line. The assistance to Mauritania represents debt-service savings of about $36 million a year over the next 10 years, or about 40 percent of total yearly debt-service obligations, the press release states.

Also in February, the IMF approved a three-year Extended Fund Facility arrangement in the amount of SDR 3.6 billion (about $5 billion) to support Indonesia’s economic and structural reform program, as well as the second-year program for the Kyrgyz Republic under the Poverty Reduction and Growth Facility (PRGF) equivalent to SDR 21.5 million (about $29 million).

In the press release announcing its decision, the IMF notes that Indonesia made considerable progress under its previous extended arrangement (see IMF Survey, August 31, 1998, page 269) in restoring macroeconomic stability, addressing the financial crisis, advancing structural reforms, and ensuring food security. However, the country must do more to revive the real economy and lay the foundation for a sustained recovery that will increase employment and reduce poverty.

Through its new program, Indonesia is seeking to restore economic growth to 5-6 percent by 2002 and to keep inflation to less than 5 percent a year. As the pace of investment in Indonesia picks up over the next several years, the press release notes, the country’s current account is expected to weaken but the declines should be off set by official financing and improvements in private capital flows. To achieve its objectives, Indonesia will implement a range of fiscal policy measures, including a gradual reduction of untargeted subsidies; civil service wage reforms, along with efforts to reduce corruption; and fiscal decentralization, which is intended to preserve fiscal neutrality. At the same time, the authorities are proposing measures to protect small households from the impact of the lower subsidies. Social spending, the press release says, will also aim to strengthen poverty-alleviation programs, support rice distribution, and provide health, education, and employment services.

The Kyrgyz economy grew strongly in 1997 and the first half of 1998, before deteriorating in the second half of 1998 and 1999, largely as a result of the Russian financial crisis. Consumer price inflation reached about 40 percent by the end of 1999. The PRGF program aims to raise real GDP growth to 4-5 percent a year over the medium term and to stabilize inflation at about 5 percent by 2003. It also aims to reduce the cash fiscal deficit and increase the country’s international reserves. To achieve its objectives, the government’s fiscal policy entails preventing new arrears from emerging, containing public sector wages, and reforming the civil service while increasing revenues to 14 percent of GDP. Structural reforms under the program include reducing state intervention in decision making and accelerating the restructuring and privatization of state enterprises. The country’s overall poverty reduction strategy is to reduce by half the current level of poverty.