Delivering on Debt Relief: From IMF Gold to a New Aid Architecture

by Nancy Birdsall, John Williamson (Editor), Brian Deese

Overview

This study brings readers up to date on the complicated and controversial subject of debt relief for the poorest countries of the world. What has actually been achieved? Has debt relief provided truly additional resources to fight poverty? How will the design and timing of the "enhanced Heavily Indebted Poor Country (HIPC) initiative" affect the development prospects of the world's poorest countries and their people? The study then moves on to address several broader policy questions: Is debt relief a step toward more efficient and equitable government spending, building better institutions, and attracting productive private investment in the poorest countries? Who pays for debt relief? Is there a case for further relief? Most important, how can the case for debt relief be sustained in a broader effort to combat poverty in the poorest countries?

Product Details

ISBN-13:	9780881324457
Publisher:	Peterson Institute for International Economics
Publication date:	04/17/2002
Sold by:	Barnes & Noble
Format:	eBook
Pages:	192
File size:	2 MB

About the Author

Nancy Birdsall currently serves on the Institute's Board of Directors and is the founding president of the Center for Global Development (CGD) in Washington, DC, USA. She is also the former executive vice-president of the Inter-American Development Bank. She co-founded CGD in November 2001 with C. Fred Bergsten and Edward W. Scott, Jr. Prior to becoming the President of CGD, Birdsall served for three years as Senior Associate and Director of the Economic Reform Project at the Carnegie Endowment for International Peace.

John Williamson, senior fellow (retired), was associated with the Institute from 1981 to 2012.

Table of Contents

	Foreword	ix
	Preface	xi
1	Introduction	1
	Group A versus Group B	1
	Expanding Debt Relief	4
	Reinventing the Aid Architecture	6
Appendix 1.1	Ten Questions about Debt and Debt Relief	8
2	The HIPC Initiative: Background and Critiques	13
	The Heavily Indebted Poor Countries	19
	Recent Debt Relief Initiatives	21
	The Enhanced HIPC Framework	26
	Critiques of the Enhanced HIPC Initiative	33
3	The Case for More	41
	Debt Sustainability	41
	The Millennium Development Goals	44
4	What Form of More?	49
	Political Resonance	50
	Additionality	55
	Redistribution	61
	Efficiency	66
	Country Selectivity	75
	Summary	78
5	Deepening and Extending Debt Reduction	79
	Deeper Relief	80
	Making More Countries Eligible	86
	A Contingency Facility	91
	Financing More Debt Relief	93
6	A New Aid Architecture	101
	The HIPC Procedure	102
	Grants, Not Just Loans	106
	Incremental Proposals to Increase Donor Accountability	108
	Donor Incentives for Selectivity	110
	Exploiting Multilateralism: The Common Pool	113
	Sovereign Debt: Building on the HIPC Initiative	114
7	Conclusions	115
	Whether to Extend More Debt Relief	116
	How to Extend the HIPC Initiative	117
	Cost of the Extensions	117
	Toward a New Aid Architecture	118
Appendix A	Multilateral Institutions Participating in the HIPC Initiative	119
Appendix B	Countries Classified by Income	121
Appendix C	Odious Debt	123
	References	147
	Glossary	151
	Index	153
	Tables
Table 2.1	Resource flows to HIPCs and all developing countries, 1980-99	18
Table 2.2	Growth in HIPCs and other developing countries, 1980-99	19
Table 2.3	Heavily indebted poor countries	29
Table 2.4	Debt statistics for HIPC countries	30
Table 4.1	Project versus nonproject activity: Commitments of bilateral ODA to the HIPCs, 1973-99	70
Table 5.1	Additional reduction needed for post-decision point HIPCs that are above the 2 percent threshold	82
Table 5.2	Cost to bring all non-decision point HIPCs below the 2 percent debt-to-GNP threshold	83
Table 5.3	Cost of Eurodad proposal for limiting debt service	85
Table 5.4	Debt indicators for potential HIPCs, 1999	87
Table 5.5	Debt statistics for other low-income countries, 1999	88
Table 5.6	Cost to bring all low-income countries below the 2 percent threshold for debt service to GNP and 150 percent threshold for debt to exports	90
Table 5.7	Hypothetical cost of contingency procedure	94
Table 6.1	Continued aid dependence of post-completion point HIPCs	105
Table C.1	Odious debt: Commitments to countries considered "Not Free" and "Corrupt"	124
Table C.2	Resource flows and other indicators for the Democratic Republic of Congo, 1970-99	125
Table C.3	Resource flows and other indicators for Kenya, 1970-99	129
Table C.4	Resource flows and other indicators for Nicaragua, 1970-99	133
Table C.5	Military and social spending by Nicaragua, 1979-99	137
Table C.6	Resource flows and other indicators for Pakistan, 1970-99	140
Table C.7	Resource flows and other indicators for Uganda, 1970-99	144
	Figures
Figure 2.1	ODA loans to sub-Saharan Africa, 1970-99	16
Figure 2.2	World Bank and IMF loan disbursements to low-income countries, 1970-99	17
Figure 2.3	Debt ratios of HIPCs and other developing countries	20
Figure 2.4	Evolution of ODA disbursements from EU countries, 1980-99	22
Figure 2.5	Breakdown of debt by creditor, nominal debt stock, 1999	24
Figure 2.6	Realized and projected annual growth rates, 1980-2015	39
Figure 3.1	Ratio of NPV of debt-to-export for HIPCs at the decision point, projections, and past export trends	44
Figure 3.2	"Group of Eight" by Dan Wasserman	45
Figure 4.1	Aid to low-income countries in per capita terms, 1990-99	57
Figure 4.2	The increasing aid coordination challenge	67
Figure 4.3	Aid and debt, sub-Saharan Africa, 1977-87 and 1988-98	77
Figure 5.1	Cost estimates to public sector	95
Figure 5.2	Authors' proposals	100
	Boxes
Box 1.1	The enhanced HIPC Initiative	2
Box 2.1	A short history of sovereign lending and default	14
Box 2.2	Debt initiatives	23
Box 3.1	The annual cost of achieving the Millennium Development Goals	47
Box 4.1	Aid accounting and debt relief	56
Box 4.2	The Central American Bank for Economic Integration	60
Box 4.3	The IMF's future role in development	62
Box 4.4	Aid does work--if...	64
Box 6.1	The PRSP challenge: Avoiding business as usual	103
Box 6.2	Assessing country performance: Selectivity using what measures?	111

Editorial Reviews

The first study published by the Institute for the new Center for Global Development, founded in November of 2001. The authors examine the economics of foreign debt and make recommendations for expanding and improving the International Monetary Fund and World Bank endorsed HIPC (heavily indebted poor country) initiative. They argue that the current initiative perversely focuses on improving the performance of recipient countries, failing to address the political and bureaucratic incentives that led donors and creditors to provide unmanageable loans. They recommend expanding debt reduction if debt servicing exceeds two percent of a country's GNP, expanding eligibility for the HIPC Initiative to all low-income countries, and the creation of ten years insurance against being pushed into unsustainability by factors beyond their control. Annotation c. Book News, Inc., Portland, OR (booknews.com)

Booknews

A hard-headed analytical work that is sensitive to the needs of poor countries. The authors do a wonderful job of sorting their way through a confusing set of issues. Their answers are simple, compelling and powerful.

Dani Rodrik

[E]stablishes a solid place for debt relief within the broader development agenda and highlights the role of the Center for Global Development in bridging the gap between campaigners and scholars in the development policy debate.

Gerry Flood