Delivering on Debt Relief: from IMF Gold to a new aid Architecture

Abstract

Too often discussions on foreign aid to poor countries end with a call on wealthier countries to do more. This book is different. Not in the ultimate conclusion, but in the authors’ effort in analysing the issue of debt relief to low‐income countries in the broader perspective of a new aid architecture. Birdsall and Williamson offer a very valuable contribution by devising a feasible new aid architecture, assisted by their professional, not only academic, experience with international policy‐making institutions. In 1996, the IMF and the World Bank launched the HIPC (Heavily Indebted Poor Country) Initiative, which would be ‘Enhanced’ three years later. Unlike a simple debt‐stock reduction, the Initiative keys the extent of debt‐relief to the amount necessary to achieve ‘debt sustainability’ and includes, for the first time, the debt owed to multilateral financial institutions. The Initiative has been applied to low‐income countries with a track record of sound macroeconomic policies. In its ‘Enhanced’ version – beyond providing faster and deeper debt‐relief – it also emphasises the need for HIPCs to commit more resources to social expenditures, following savings in their debt‐service. Differently from the traditional notion of conditionality, countries would formulate, through an extensive involvement of the civil society, a Poverty and Reduction Strategy Paper in which they lay down their own strategy to combat poverty and foster social and economic development.