Debt Relief for the Poorest: An Assessment of the Heavily-Indebted Poor Countries (HIPC) Initiative

Abstract

High level of external debt poses a serious constraint on the ability of poor countries to pl.ll.'SUe sustainable development and reduce poverty. The Heavily Indebted Poor Countries (HIPC) Initiative was designed to relieve the high external debt of some of the world's poorest nations by either writing-off or reducing debt to sustainable levels. It was launched by the World Bank and the International Monetary Fund (IMF) in 19% and "enhanced" in 19()9 to expand and accelerate the process of debt relief and free scarce public resources fur sustainable economic development, in particular, broad based development to reduce poverty. Whether debt relief, in general, or the HIPC Initiative, in particular, can achieve such development outcomes has been the subject of much debate. 1bis paper argues while the HIPC initiative is a positive step towards debt relief and sustainability, it is important to note that sustainable debt is not an end in itself, but should be an essential element in realizing the growth needed to reduce poverty and achieve the Millennium Development Goals (MDGs). To realize the full potential of debt relief, donor countries will not only have to be more generous, and the recipient countries need to undertake deeper structural reforms, debt sustainability assessments should specifically take into account how the poor countries can achieve the MDGs.