INTRODUCTIONIn recent years public and media attention to the debt problems of developing countries has been growing. In contrast to the crisis of the 1980s, which largely affected middle-income countries burdened by private commercial debt, the present crisis and ensuing discussions have centered on the poorest countries, most of which are in subsaharan Africa.This article explores the developing country debt issue from the perspective of a bilateral donor, with particular emphasis on issues that affect the Canadian International Development Agency (CIDA). Although bilateral aid donors have participated on the margins of policy debates surrounding the need for debt relief initiatives and their implementation, the implications of the enhanced Heavily Indebted Poor Countries (HIPC) initiative (which defines the global debt strategy for the poorest developing countries) implies a stronger role for bilateral development agencies if it is to succeed. However, for some donors such as CIDA, participation is contingent upon overcoming certain capacity constraints.An examination of the evolving pattern of official debt relief in the 1990s - and the role for donors - should begin with the historic and modern day role of the Paris Club(f.1) before looking at the first effort to implement the HIPC initiative (1996-9). The second part of this article will discuss more recent developments in the global debt strategy, stemming from endorsements made at the September 1999 Interim and Development Committee meetings of the International Monetary Fund (IMF) and World Bank, which have a potential impact on bilateral aid agencies.THE PARIS CLUB AND THE GLOBAL DEBT STRATEGY PRIOR TO HIPCMost developing countries in need who request debt relief from their creditors and who have a demonstrated track record of economic reform through an IMF programme are eligible for non-concessional or concessional rescheduling packages from the Paris Club on their outstanding official debts.(f.2) The maximum amount of concessionality offered to developing countries has increased over time beginning with the introduction of the Toronto Terms in 1988.(f.3) Regardless of the depth and breadth of debt relief, the decision was always based more or less on the objective of debt sustainability. In other words, the debtor should be able to manage the debt repayments. However, for many poor developing countries, particularly in subsaharan Africa, the objective was not always achieved. The burden of servicing the debt was such that many countries - Cote d'Ivoire, Madagascar, Niger, and Senegal for example - had to return repeatedly to the Paris Club.(f.4)In Canada, the Department of Finance heads the Paris Club process, in consultation with the Department of Foreign Affairs and with input from the major Canadian creditor agencies: the Export Development Corporation, the Canadian Wheat Board, and CIDA. In the event of a rescheduling, Canada and other official creditors meet in Paris with representatives of the debtor country to negotiate the terms. The affected national creditor agencies then have to negotiate bilateral agreements with the debtor country within a timeframe established by the Paris Club. Although CIDA continues to manage a portfolio of approximately $1.6 billion of official development assistance (ODA) loans,(f.5) it has forgiven most CIDA loans to Paris Club debtor states. It has, therefore, been involved only infrequently in the workings of the Paris Club. Nonetheless CIDA has, over the past five years, finalized (or is close to finalizing) Paris Club rescheduling agreements with Egypt, Algeria, Morocco, Indonesia, and Pakistan.The formal Paris Club operations have often been complemented by unilateral debt forgiveness, typically of ODA loans. Since 1978, for example, Canada has forgiven over $1.3 billion in outstanding ODA loans, mostly to subsaharan states. Debt conversion programmes have also complemented Paris Club actions. …