The Heavily In-debt Poor Countries Initiative is Not Working
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- This page: https://www.globalissues.org/article/31/the-heavily-in-debt-poor-countries-initiative-is-not-working.
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The Heavily In-debt Poor Countries (HIPC) initiative set up in 1996 by the rich nations through the IMF and World Bank calls for the reduction of external debt through write-offs by official donors. It was set up for the poorest of nations, for whom, according to the World Bank, the debt of the HIPC countries was, on average, more than four times their annual export earnings, and 120 percent of GNP. But the HIPC initiative has been met with a lot of criticism for not actually helping the countries it is supposed to be helping (the indebted nations) while helping those it wasn't necessarily meant to (the rich nations):
The HIPC policy has long been criticized by many organizations for not actually amounting to much relief in real terms due to it being tied to certain conditionalities that are recommended by the IMF and World Bank, which prescribed the problems of the poorer countries in the first place. The IMF and World Bank themselves have come out with a report saying such things, as reported by the Drop the Debt campaign.
The European Network on Debt and Development, for example, point out in a report that the HIPC is unlikely to free up resources to tackle poverty for three main reasons:
Threshold levels to measure debt sustainability are arbitrary and still too highand that
sustainability is defined in economic terms and not in terms of human and social development.As a result, they point out, several least developed countries with significant debt burdens have not been included in the HIPC initiative.
- The debt reduction on offer is too small. They point out, for example, that Zambia and Niger will actually pay more after the initiative than they did before.
piling upof different sets of conditionalities slows down the process. Conditionalities such as the much-criticized Poverty Reduction Strategy Papers (PRSPs) from the IMF and World Bank
do not succeed in aligning macro-economic issues and poverty issues more closely than in the past and macro-economic frameworks haven't changed significantly as a result of PRSPs.
Furthermore, the World Bank has been criticized by Oxfam in a report, for having
used wildly optimistic growth projections for the 22 HIPC countries. The ramification of this as they continue is that because
projections are linked to growth, revenues have been overestimated, and debt is likely to absorb much larger shares of government revenue than World Bank projections state meaning that in many cases nations will continue to spend more on debt than on basic education or health, even after receiving HIPC debt relief.
Jubilee Research (formerly the prominent debt campaign organization) has criticized the HIPC initiative, playing on the acronym, describing it as
Half-hearted, Inadequate, Piecemeal Cancellation in a report that looks at the issue of corruption, debt, lending and borrowing.
The case of Zambia as the following quote shows, highlights well the situation for most recipients of this
The IMF and World Bank have actually admitted that the HIPC initiative is backfiring in some cases and are confirming warnings that debt-relief advocates were making even before the scheme was launched.
Even Joseph Stiglitz, the World Bank's Chief Economist and Vice President, in January, 1998 called their structural adjustment HIPC initiative interests of the creditors than the debtors.
And at the end of 1999, Joesph Stiglitz stepped down as the former Chief Economist of the World Bank renewing his previous criticisms of the World Bank and IMF saying that it was not open and transparent enough, especially to additional viewpoints and the positions of the developing countries. In his own words,
The policy of imposing conditions on countries seeking economic aid had failed.
The most senior finance minister in Britain, Gordon Brown also admitted that debt needs to be cut back and it is a major cause of poverty, injustice and even a barrier to peace in some areas of the world. This is fairly significant as Britain has been a key player in the world financial institutions, from its colonial history to modern economic strength and world influence.
The IMF has attempted to provide
deeper, broader and faster debt relief with their enhanced HIPC debt initiative. Unfortunately though the same old problems of forcing poor countries' economic policies to be dictated by the IMF remains unchanged.
As well as the above links, the following provide more in-depth information, about the HIPC initiative and its criticisms:
- The Transfer of Wealth; Debt and the making of a Global South, a publication of Focus on the Global South, October 2000, Chapters 2 and 4. (You will need to download the Adobe Acrobat reader to read the online PDF version, if you have not already got it.)
- What I learned at the world economic crisis. The Insider by Joseph Stiglitz, former Chief Economist of the World Bank, harshly criticizes the IMF.
- This report from Oxfam, about debt, the IMF, the Heavily Indebted Poor Countries Initiative etc. shows that even though there has been some effort to do something, not enough is being done.
- Reality Check: the need for deeper debt cancellation and the fight against HIV/AIDS A report by Drop the Debt, contains an independent audit of World Bank and IMF accounts which show they can afford to cover the costs without damaging their ability to function.
- The Challenge of Maintaining Long-Term External Debt Sustainability by the World Bank and IMF, April 20, 2001. (You need the Adobe Acrobat reader installed to read PDF documents.) This report admits that the HIPC debt package will provide an end to the debt crisis for the countries involved. Amongst other things, it points out that the amount of debt that is reduced is not that much.
- Foot-Dragging on Foreign Debt from the South Centre provides additional critique of the HIPC initiative and the Poverty Strategy Papers (PRSP) from the IMF and World Bank, to replace the flawed Structural Adjustment Programs.
- Debt reduction for poverty eradication in the least developed countries provides analysis and recommendations on debt of least developed countries and the impacts of HIPC.
- Kicking the Habit; Finding a lasting solution to addictive lending and borrowing and its corrupting side-effects by Joseph Hanlon and Ann Pettifor, Jubilee Research, March 2000, looks at the impact of misused lending and spending, as well as the issue of corruption.
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