What is HIPC debt relief?

The enhanced Heavily Indebted Poor Countries (HIPC) initiative establishes debt relief as part of a broader reform and poverty reduction strategy. It is part of the overall development framework established to enable the poorest countries to move ahead more quickly to achieve a better life for their citizens.

The HIPC initiative, the largest debt relief program for the poorest countries, was launched in September 1996 as the first comprehensive effort to help those countries free themselves from unsustainable debt and debt payment burdens that consumed significant portions of their national governments' funds.

In 1999, under U.S. leadership, the G-7 agreed at the Cologne Summit to expand the HIPC initiative to provide deeper, broader and faster debt relief. The Cologne Initiative provides for cancellation of up to $90 billion in debt owed by 33 of the world's poorest countries, in support of their own efforts on economic reform and poverty reduction.

What debt is covered?

The HIPC relief will reduce all debt held or guaranteed by the governments of HIPCS, including debt owed to the international financial institutions and governments. The G-7 and other Paris Club creditors have pledged to cancel all ODA (concessonal) debt, in addition to reducing non-concessional debt.

What is U.S. policy towards granting debt relief?

The U.S. strongly supports debt reduction for the poorest, more heavily indebted countries which institute specific economic reform and poverty reduction programs. This allows these countries to use the funding freed up for poverty reduction programs such as health and education.

What is the U.S. commitment under enhanced HIPC?

The United States has announced its intention to go beyond the levels of HIPC debt reduction by forgiving debt owed to it by countries that complete the HIPC process, including 100 percent of bilateral non-concessional debt.

U.S. debts cancelled or reduced would include loans from the Export-Import Bank of the United States, the Department of Agriculture, the Department of Defense, and the U.S. Agency for International Development.

What does a country have to do to become eligible?

A country must be among the poorest and most heavily indebted countries on a list of eligible countries compiled by the World Bank in 1996. In addition, it must:

-- Be eligible for assistance only from the International Development Association (IDA), the part of the World Bank that lends on highly concessional terms;

-- Face an unsustainable debt situation even after the full application of traditional debt relief mechanisms (Naples terms debt reduction of 67 percent of eligible Paris Club debt); and

-- Have established a track record of successfully implementing economic and social reforms.

HIPC countries must develop a poverty reduction strategy in consultation with civil society and institutions in the country, donors and the international financial institutions. Such reforms are necessary for a country's economic growth and sustainable development.

Which countries have already been beneficiaries of HIPC debt relief?

Under the previous HIPC program, seven countries, Bolivia, Guyana, Mozambique, Uganda, Cote d'Ivoire, Burkina Faso and Mali reached a decision point and four, Bolivia, Guyana, Mozambique and Uganda reached the completion point, receiving $5.5 billion in debt relief.

Under the enhanced initiative, Benin, Bolivia, Mauritania, Uganda, Tanzania, Mozambique, Senegal, Honduras and Burkina Faso have reached their decision points, indicating they have made economic reforms and developed at least "interim" poverty reduction strategies.

How much debt relief has been granted since the plan adopted last year in Cologne?

Total debt relief committed for the first nine countries will be approximately $16 billion. Adding in commitments made under the original HIPC initiative to Guyana, Mali and Cote d'Ivoire brings total HIPC debt relief to almost $17 billion.

How many countries are nearing eligibility for debt relief?

As many as 20 countries could be approved for debt relief by the end of this year, although timing on eligibility will depend on countries meeting requirements on economic and social reform and development of poverty reduction stategies.

What happens at the "decision point"?

The countries that have met the requirements under HIPC, including an approved poverty reduction strategy, are eligible for reduction in their debt payments on loans provided by the IFIs -- the IMF and the World Bank, and regional financial institutions. Countries also go to the Paris Club where they negotiate substantial reductions on the payments on the debts they owe industrial country governments.

How is completion defined?

The duration of the second phase of the HIPC program depends on the successful implementation of structural policy reforms and poverty reduction programs agreed to at the decision point. Creditors are expected to continue to provide relief as countries work to meet the criteria for the completion point.

Uganda reached its completion point in May 2000. Bolivia should get to it by the end of the year.

What is status of U.S. funding for HIPC?

Congress appropriated $110 million for HIPC debt reduction in FY-00. The Administration requested a total of $435 million for the remainder of this fiscal year (FY-00) and in the FY-01 budget. Thus far, the Senate Appropriations Committee has recommended appropriations of $75 million; the House approved $225 million.

If financing is not forthcoming, some HIPC programs will not be fully funded. Because the United States has not made a contribution to the HIPC Trust Fund, debt relief for Bolivia and Honduras is already limited. Other creditors are basing their contributions on the U.S. contribution. Without these contributions, there are not enough resources to cover the costs of the Inter-American Development Bank's participation in the HIPC initiative. (The HIPC Trust Fund was created to help regional multilateral development banks that do not have the resources to fully cover their share of HIPC debt relief without seriously impairing their ability to make new loans.)

The Administration is working with Congress to resolve these funding issues.

What is the Administration's position?

The Administration believes that obtaining sufficient funding is critical to implement the enhanced HIPC initiative fully and effectively.

What have been the obstacles for poor countries to get HIPC relief?

The reasons for the delays in countries reaching their decision points have varied but have mainly been due to major slippages on economic and social reform or involvement in armed conflict.

What role does HIPC debt relief play in the upcoming G-8 Summit?

The G-8 leaders agree that global poverty reduction is the overarching aim of our development strategy. Debt relief for the poorest countries through the HIPC initiative will be one of the G-8 development priorities.

To succeed, the developing country must take primary responsibility for its own development strategy. Among the essential features of any successful strategy is a commitment to strengthening governance and to building human capacity-universal education, public health and nutrition, and other basic human needs.

What are the G-8 development priorities?

In addition to HIPC debt relief, G-8 leaders will consider health issues including efforts to combat HIV/AIDS and other infectious diseases, education, and mainstreaming trade into development strategies as a means of combating poverty.

What else is the U.S. doing to help the poorest countries?

HIPC debt relief is only one of the ways in which the U.S. is working to assist the world's poorest countries improve the lives of their citizens. USAID administers a variety of assistance programs to foster viable democracies and encourage market economies to promote development. In FY-2000 USAID has administered a budget of $7.7 billion to aid the developing world.

The U.S. has spent $1.4 billion since 1986 to prevent and mitigate HIV/AIDS in developing countries. Congress responded to an urgent request by President Clinton for an additional $100 million for FY-2000 to enhance global AIDS efforts, more than doubling the funding for prevention and treatment in African countries.

The United States also contributes to help fund the World Bank and its regional counterparts and their efforts to promote economic growth and poverty reduction in the poorest countries. These institutions are now targeting more lending for primary health, basic education, and other priority social sectors that reach the poorest. For example, the World Bank has lent nearly $1 billion in the global fight against HIV/AIDS and recently announced plans to substantially expand its lending for AIDS, malaria, tuberculosis, and immunizations. The World Bank and the regional development banks are also participating fully in the HIPC debt relief Initiative.

Through the GSP (generalized system of preferences) program, the U.S. expands access to its markets -- already among the world's most open -- to many goods from developing countries that meet the program's requirements. The recently-passed African Growth and Opportunity Act (AGOA) and Caribbean Basin Initiative (CBI) offer further opportunities for access to U.S. markets to qualifying countries, providing another avenue for furthering sustainable economic growth.

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