Another world order? The Bush administration and HIPC debt cancellation

Abstract

In mid-2005, the Group of Seven (G7) finally accepted the argument that the multilateral debt of many poor countries should be wiped out entirely. The decision was an important one in the recent tortured history of multilateral debt relief that began almost a decade earlier with the 1996 Highly Indebted Poor Country (HIPC) initiative. That earlier initiative had first identified 41 countries that couldbeeligibleforwrite-downsoftheirdebtstomultilateralfinancialinstitutions, including the World Bank’s International Development Association (IDA), the International Monetary Fund (IMF) and regional development banks such as the African Development Bank (AfDB). Its goal had not been to wipe out the debts of these countries but rather simply to make them ‘sustainable’, a concept that was defined at the time in a highly restrictive manner. Countries were also not eligible for the promised debt relief until they had implemented IMF-backed economic reforms: an initial amount of debt relief was offered at a ‘decision point’ after reforms had been in place for three years, while the remainder was released only at a ‘completion point’ after six years of reforms. In the face of widespread protests mobilised by the worldwide Jubilee movement, the G7 leaders soon acknowledged that very few countries were qualifying for multilateral debt relief under the HIPC initiative and that the relief offered was too little and too slow. At their Cologne summit in 1999, they announced an Enhanced HIPC initiative that claimed to respond to calls for faster, deeper and broader multilateral debt relief. The definition of debt sustainability was made less restrictive, more debt relief was offered at the decision point and the completion point could now be reached earlier than the six-year timeframe according to policy reform performance. In addition, debt relief was now tied more explicitly to poverty reduction measures in recipient countries. But these changes still fell far