On HIPC, Debt Relief: The Road to Development

Given the overwhelming propensity towards corruption by African national and local government officials, I asked James D. Wolfensohn, the indefatigable Managing Director of the World Bank, at a press conference Thursday, Sep. 26, in Washington, DC, if it would not be prudent for the Bank, in consultation with qualifying African governments, to set benchmarks and guidelines for disbursement and utilization of the funds accruing from the HIPC initiative, at the country level; that is if the money is to do what is expected. The press conference was one of the numerous briefings offered during the 2002 Annual Meetings of the IMF and the World Bank.

WOLFENSOHN: “First of all, the Bank is contributing more than a quarter of the funds in HIPC, so as to the funds themselves, we’re putting up over $12 billion. So the first thing is that we are participating.

The second thing, as to what the money should be spent on, is that part of the deal on HIPC is that the money should be spent for purposes notably in education and health--- and that is actually happening. All the measurements that we are doing in terms of funds released are demonstrating a significant increase in education and health expenditures”.

Final Call reporter asked Wolfensohn about press reports suggesting depletion of the funds at the Bank for countries qualifying under the HIPC initiative.

WOLFENSOHN: “Well, first of all, the HIPC initiative was originated here in terms of trying to address the question of debt repayment from the highly indebted countries and in particular from Africa. And what we have thus far managed to do is to select those that are very highly indebted and bring about debt relief to the extent so far of over $40 billion in nominal terms and $26 billion in real terms. And we are approaching this on a basis that we would like to get these countries to a sustainable level.

Now, the first thing you may have read about is that the analysis that was done to say how much money should we give them was in fact underestimated because economic activity dropped and particularly commodity prices dropped; and we also wanted to add three or four new countries.

So there is a gap of the order of $800 million which needs to be filled, so that is probably the point that you are alluding to. It doesn’t have anything to do with the stability of the Bank. It has to do with the trust fund that deals with debt.

Now, the G-7 countries have indicated that they are prepared to put up funds up to the extent of $1 billion, and we are hopeful that at these meetings, we’ll get an indication from the G-7 of that support; and some other countries have said that they are prepared to come in. So I don’t see that there is likely to be a problem, and I think that the gap will be filled within the very near future.

QUESTION: The Guardian newspaper reporter. “You talked a bit about HIPC just now. I just wonder whether you thought that the problems that a lot of the HIPC countries are having with sustainability because of falling commodity prices reflect a deeper problem with HIPC that can’t be solved just by topping-up.

I know the Bank and the Fund produced a paper ahead of these meetings which went through the options. Do you think that HIPC needs to be looked at again, more seriously and more structurally, to find a better way of looking at sustainability or whether we need to reopen the whole HIPC initiative again, or whether you think it can be solved just by ladling out a bit more money to countries that have specific problems with falling prices?”

WOLFENSOHN: “I think that is a very perceptive question. I think all too many people think that HIPC is the answer to everything, and HIPC is not the answer to everything. HIPC gives you a financial base on which you can move forward with sustainable debt, and in the case of the HIPC countries, we have reduced their debt by up to three-quarters of their previous debt and reduced their annual requirement for debt by three-quarters. So that gives them a start so that they are healthy in terms of the amount of debt they have, but if they don’t follow it with good procedures, good governance, and the sort of things that in the case of African countries they have indicated in NEPAD that they want to do, then, just getting them out of debt on a once-only basis is not going to be enough.

The other thing that I’d say is that we are simultaneously saying that it is not just in the hands of the developing countries. To talk about HIPC without rich countries talking about access to poor countries, without talking about reducing agricultural subsidies, without talking about openness, is no answer.

Given the overwhelming propensity towards corruption by African national and local government officials, I asked James D. Wolfensohn, the indefatigable Managing Director of the World Bank, at a press conference Thursday, Sep. 26, in Washington, DC, if it would not be prudent for the Bank, in consultation with qualifying African governments, to set benchmarks and guidelines for disbursement and utilization of the funds accruing from the HIPC initiative, at the country level; that is if the money is to do what is expected. The press conference was one of the numerous briefings offered during the 2002 Annual Meetings of the IMF and the World Bank.

WOLFENSOHN: “First of all, the Bank is contributing more than a quarter of the funds in HIPC, so as to the funds themselves, we’re putting up over $12 billion. So the first thing is that we are participating.

The second thing, as to what the money should be spent on, is that part of the deal on HIPC is that the money should be spent for purposes notably in education and health--- and that is actually happening. All the measurements that we are doing in terms of funds released are demonstrating a significant increase in education and health expenditures”.

Final Call reporter asked Wolfensohn about press reports suggesting depletion of the funds at the Bank for countries qualifying under the HIPC initiative.

WOLFENSOHN: “Well, first of all, the HIPC initiative was originated here in terms of trying to address the question of debt repayment from the highly indebted countries and in particular from Africa. And what we have thus far managed to do is to select those that are very highly indebted and bring about debt relief to the extent so far of over $40 billion in nominal terms and $26 billion in real terms. And we are approaching this on a basis that we would like to get these countries to a sustainable level.

Now, the first thing you may have read about is that the analysis that was done to say how much money should we give them was in fact underestimated because economic activity dropped and particularly commodity prices dropped; and we also wanted to add three or four new countries.

So there is a gap of the order of $800 million which needs to be filled, so that is probably the point that you are alluding to. It doesn’t have anything to do with the stability of the Bank. It has to do with the trust fund that deals with debt.

Now, the G-7 countries have indicated that they are prepared to put up funds up to the extent of $1 billion, and we are hopeful that at these meetings, we’ll get an indication from the G-7 of that support; and some other countries have said that they are prepared to come in. So I don’t see that there is likely to be a problem, and I think that the gap will be filled within the very near future.

QUESTION: The Guardian newspaper reporter. “You talked a bit about HIPC just now. I just wonder whether you thought that the problems that a lot of the HIPC countries are having with sustainability because of falling commodity prices reflect a deeper problem with HIPC that can’t be solved just by topping-up.

I know the Bank and the Fund produced a paper ahead of these meetings which went through the options. Do you think that HIPC needs to be looked at again, more seriously and more structurally, to find a better way of looking at sustainability or whether we need to reopen the whole HIPC initiative again, or whether you think it can be solved just by ladling out a bit more money to countries that have specific problems with falling prices?”

WOLFENSOHN: “I think that is a very perceptive question. I think all too many people think that HIPC is the answer to everything, and HIPC is not the answer to everything. HIPC gives you a financial base on which you can move forward with sustainable debt, and in the case of the HIPC countries, we have reduced their debt by up to three-quarters of their previous debt and reduced their annual requirement for debt by three-quarters. So that gives them a start so that they are healthy in terms of the amount of debt they have, but if they don’t follow it with good procedures, good governance, and the sort of things that in the case of African countries they have indicated in NEPAD that they want to do, then, just getting them out of debt on a once-only basis is not going to be enough.

The other thing that I’d say is that we are simultaneously saying that it is not just in the hands of the developing countries. To talk about HIPC without rich countries talking about access to poor countries, without talking about reducing agricultural subsidies, without talking about openness, is no answer.

So you need to think of HIPC as one part of a whole approach to making these countries sustainable, and ultimately in the case of commodities, one of the best things that could happen would be growth in the developed world, because when you have a downturn of the type that you have now, commodity prices tend to drop, and these countries get dramatically affected.

So I appreciate the question because it allows me to say that I think HIPC is very important. But HIPC without open markets, HIPC without self-regulation in terms of legal and judicial reform and proper planning, without education, without health, is not going to do the trick; it’s going to be a once-off palliative like aspirin, but its not going to fix the major problems.”