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Debt Relief Initiative for Poor Countries .pdf


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United States General Accounting Office

GAO

Report to Congressional Committees

June 2000

DEVELOPING
COUNTRIES
Debt Relief Initiative
for Poor Countries
Faces Challenges

GAO/NSIAD-00-161

Contents

Letter

5

Executive Summary

8

Chapter 1
Introduction

Chapter 2
Unless Strong,
Sustained Economic
Growth Is Achieved,
the Initiative Is Not
Likely to Provide a
Lasting Exit From Debt
Problems
Chapter 3
Linking Debt Relief and
Poverty Reduction
Creates Tension
Between Quick Debt
Relief and
Comprehensive
Strategies

Poor Countries’ Debt Burdens
Prior Debt Relief Efforts Did Not Significantly Lower Countries’
Debt Burdens
Enhanced HIPC Initiative
Objectives, Scope, and Methodology

Enhanced HIPC Initiative Provides Significant Debt Relief
To Fund Additional Spending for Poverty Reduction, Countries
Must Continue to Borrow
Ability to Repay Debt in the Future Hinges on the Assumption of
Strong Economic Growth

Preparing Strategies Is Complicated and Resource Intensive
Country Ownership and Donor Support of the Strategy Can Be
Difficult to Achieve
Differing Views on Whether to Directly Link Debt Relief to
Poverty Reduction Strategies

Page 1

24
25
28
29
38
42
43
44
49

57
57
62
66

GAO/NSIAD-00-161 Debt Relief Initiative

Contents

Chapter 4
Bilateral and
Multilateral Creditors
Face Financing
Challenges

Large Bilateral Creditors Are Important to HIPC Success
Three of the Four Largest Multilateral Creditors Face Considerable
Financing Gaps 81

Chapter 5
Conclusions
Appendixes

69
70

90

Appendix I:

Human Development Indicators for 38 Countries

92

Appendix II:

Type of Debt Incurred by Poor Countries

95

Appendix III:

Amount and Type of Debt Owed to the United
States by 40 Heavily Indebted Poor Countries,
End of 1998

98

Appendix IV: Multilateral Institutions Participating in the
HIPC Debt Initiative
Appendix V:

Conditions Eight Countries Are Expected to
Meet to Reach HIPC Milestones

100
103

Appendix VI: Methodologies Used to Analyze the Debt
Sustainability of Potential Recipients of HIPC
Debt Relief

106

Appendix VII: Information on Selected Elements of Poverty
Reduction Strategies

111

Appendix VIII:Civil Society Participation in Bolivia

123

Appendix IX: How the United States Budgets and Accounts
for Debt Relief

128

Appendix X:

Six Industrial Countries’ Methodologies for
Budgeting and Accounting for Debt Relief

143

Appendix XI: Bilateral Contributors to the HIPC Trust Fund

166

Appendix XII: Comments From the Department of the
Treasury

168

Appendix XIII:Comments From The International Monetary
Fund

172

Page 2

GAO/NSIAD-00-161 Debt Relief Initiative

Contents

Tables

Appendix XIV:Comments From the World Bank

177

Appendix XV: GAO Contact and Staff Acknowledgments

179

Table1: Status of Implementation of the HIPC Initiative, Countries
Grouped by Milestone Reached, as of May 3, 2000 (Debt
expressed in net present value terms unless otherwise noted) 33
Table2: Estimated Debt Reduction for Seven Countries Under the
HIPC Initiative
43
Table3: Key Economic Indicators for Seven Countries (Projected
and Historic, Using Nominal Dollar Values)
51
Table4: Relationship Between a Decline in Export Earnings and
Increases in Aid Flows - Tanzania
55
Table5: Seven Industrialized Countries’ Participation in the
Enhanced HIPC Initiative
72
Table6: Financing Challenges Facing Major Multilateral Creditors
82
Table7: Human Development Indicators of 38 Countries Potentially
Eligible for Debt Relief Under the Enhanced HIPC
Initiative, as of 1997
92
Table8: Concessional Loans Offered by Four Major Multilateral
Institutions
95
Table9: Nonconcessional Loans Offered by Four Major Multilateral
Institutions
96
Table10:Multilateral Creditors’ Outstanding Claims (end of 1998)
on 40 Heavily Indebted Poor Countries and Estimated
Amount of Debt Relief Under the HIPC Initiative, as of
the End of 1999
100
Table11:Conditions Eight Countries Are Expected to Meet in
Order to Reach HIPC Initiative Milestones (Monitored
under World Bank- and IMF-supported programs)
103
Table12:Status of Six Selected Countries’ Efforts to Define and
Address Poverty
112
Table13:Examples of Projects Prioritized by the Communities
for the Annual Operating Plan for 1997 of the City of
Punata, Agreed Upon in Assembly, December 12, 1996
118
Table14:Country A’s Debt Reduction at 90 Percent
134
Table15:Status of Bilateral Donor Pledges to the HIPC Trust
Fund, as of May 31, 2000
166

Page 3

GAO/NSIAD-00-161 Debt Relief Initiative

Contents

Figures

Figure1: Composition of External Debt for 40 Heavily Indebted
Poor Countries, 1995-97 (Nominal value, in billions of U.S.
dollars) 26
Figure2: Process for Implementing the Enhanced HIPC Initiative
30
Figure3: Key Elements of the Poverty Reduction Strategy as
Described in World Bank and IMF Documents
37
Figure4: Tanzania’s Required Balance-of-Payments Financing
With and Without HIPC-related Spending for Poverty
Reduction, 2000/01-2017/18
46
Figure5: Uganda’s Required Balance-of-Payments Financing With
and Without HIPC-related Spending for Poverty Reduction,
2000/01-2014/15 48
Figure6: Tanzania’s Total Debt With and Without Borrowing for
Poverty Reduction, 2000/01-2017/18
50
Figure7: Creditors’ Shares of HIPC Debt Relief
70
Figure8: Districts in Uganda with Capacity-building Programs
Funded by Official Donors and Creditors (Shown by
Shaded Areas) 120
Figure9: Bolivia’s Process for Involving Civil Society in
Developing the Poverty Reduction Strategy
124
Figure10:Results Expected from Bolivia’s Process for
Involving Civil Society in Developing the Poverty
Reduction Strategy
125
Figure11:Illustration of U.S. Government International Debt
Reduction Program Direct Modification - Subsidy
Cost Increase
138

Abbreviations
GDP
HIPC
IMF
OECD
OMB
SDR

Page 4

Gross domestic product
Heavily indebted poor country
International Monetary Fund
Organization for Economic Cooperation and Development
Office of Management and Budget
Special Drawing Right

GAO/NSIAD-00-161 Debt Relief Initiative

United States General Accounting Office
Washington, D.C. 20548

National Security and
International Affairs Division

B-285473

Le
tter

June 29, 2000
The Honorable James A. Leach
Chairman
The Honorable John J. LaFalce
Ranking Member
Committee on Banking and Financial Services
House of Representatives
The Honorable Spencer Bachus
Chairman
The Honorable Maxine Waters
Ranking Member
Subcommittee on Domestic and International
Monetary Policy
Committee on Banking and Financial Services
House of Representatives
This report responds to your request that we (1) assess whether the enhanced Heavily Indebted Poor
Countries Initiative is likely to free up resources for poverty reduction and achieve the goal of debt
sustainability, (2) describe the strategy to strengthen the link between debt relief and poverty
reduction and how this strategy is to be implemented, and (3) describe the challenges creditors face
in fully funding the enhanced initiative.
We are sending copies of the report to the Honorable Lawrence H. Summers, Secretary of the
Treasury; the Honorable Madeleine K. Albright, Secretary of State; the Honorable James D.
Wolfensohn, President of the World Bank; and the Honorable Horst Köhler, Managing Director of the
International Monetary Fund; and other interested parties. Copies will also be made available to
others on request.

Page 5

GAO/NSIAD-00-161 Debt Relief Initiative

B-285473

Please contact Harold J. Johnson, Associate Director, International Relations and Trade Issues, at
(202) 512-4128 if you or your staff have any questions concerning the report. An additional GAO
contact and staff acknowledgments are listed in appendix XV.

Henry L. Hinton, Jr.
Assistant Comptroller General

Page 6

GAO/NSIAD-00-161 Debt Relief Initiative

Page 7

GAO/NSIAD-00-161 Debt Relief Initiative


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