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Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative

Date
Time (GMT +01) 12:00 13:30

Speakers:
Victoria Elliott
, Independent Evaluation Group, World Bank
Shonar Lala, Task Manager for the Evaluation Update of the HIPC Initiative, Independent Evaluation Group, World Bank

Discussants:
Stephen Rand, Co-Chair, Jubilee Debt Campaign
Brigitte Granville, Professor of International Economics & Economic Policy, Queen Mary, University of London

Chair:

Tony Killick, Senior Research Associate, ODI


Tony Killick (ODI), chair, began the meeting by welcoming the audience and noted that perhaps issues of debt relief had become less contentious or had been resolved judging by the size of the audience relative to several years ago. He provided an introduction for the two representatives of the World Bank, Ms Elliott and Ms Lala, as well as for Mr Rand and Prof Granville.

Victoria Elliott (World Bank Independent Evaluation Group - IEG) began the presentation by clarifying the background and obligations of the IEG responsible for releasing the updated evaluation of HIPC. She said that the four primary findings of the previous report were that HIPC would succeed in reducing debt burdens if implemented as planned, that the objectives had been significantly expanded to include poverty reduction, that funding for debt relief would have to be addition to be useful and that standards on policy performance has been eroded as efforts to speed up the programme had occurred. Ms Elliott also noted the importance of evaluating the HIPC initiative in relation to the Multilateral Debt Reduction Initiative (MDRI).

Shonar Lala (World Bank IEG) continued the presentation by outlining the original objectives of the HIPC Initiative. The overall goal of the Initiative was to reduce poverty by providing a base, not necessarily permanence, for debt relief. She continued the presentation with various data showings comparing HIPC countries at completion point (CP) with HIPC countries pre and post decision point (DP) along with non-HIPC countries.

IEG findings show that overseas development assistance (ODA) has been additional for HIPC countries. The findings also show an increase in the percentage of global transfers HIPC countries received compared to non-HIPC countries. Analysis of debt ratios showed a decline in debt following HIPC initiatives, but a subsequent rise due to new borrowing, exacerbated by volatile discount and exchange rates. This rise in debt indicates a need for debt management in addition to relief. When viewed in terms of achievement of Millennium Development Goals, HIPC countries showed significant improvement in all areas except infectious disease control and poverty reduction.

Mr Killick summarized the presentations into three primary issues:
(1) What should be the expectations of the MDRI?
(2) Is enough effort being made in debt management compared to debt relief?
(3) What should be done about pre-decision point countries?

Stephen Rand (Jubilee Debt Campaign) emphasised that campaigners had been looking for a new vision and a new start on debt; instead they had seen the incremental, anti-democratic and unjust HIPC process. Mr. Rand said that while the IEG report was a good analysis, it focused too narrowly: instead of measuring debt service capacity in terms of export earnings, Mr. Rand proposed a human needs approach to determine how much debt should be written off. He found the report's indication of the additionality of HIPC funds positive, but the distortion of the fund allocation to HIPC countries potentially dangerous. He regarded the conditionality placed on debt relief by the IMF and the World Bank as undermining the democratic processes of these developing countries and damaging the lives of people who are poor.

Mr. Rand was concerned that the MDRI obscures the issue of debt relief by looking at it through the HIPC framework of qualification and conditions. He indicated that there was a danger that a bad process would discredit the concept of debt cancellation. He re-emphasized the need for a new vision, and a new comprehensive process based on a country-by-country approach.

Brigitte Granville (Professor of International Economics and Economic Policy, Queen Mary, University of London) began by mentioning the disconnect between linking debt relief to poverty relief. She found three specific problems facing debt relief. First, the moral hazard of offering more relief to low-income countries was high. Prof Granville reviewed the history and change of private government debt relief to the official debt relief starting in the 1990s. The issue is further complicated by the tenuous link between high debt and bad governance; much of the ability to govern was taken away through conditionality principles. Secondly, Prof Granville questioned why these governments can not succeed without assistance. She attributed this much to the volatile prices of commodities relied upon by developing countries. Additionally, Western agricultural subsidies prevented market principles from taking place. The speaker also mentioned the agreement by the European Union to trade with countries under the HIPC initiative, but the hesitancy of the United States to follow suit. The third issue she believed troubles low-income countries is tied aid. The prevention of industrial protections and market protections in fragile nations could detriment the nations in question.

Mr Killick summarized the overall debate into three categories:
(1) Needs driven aid vs. current performance driven aid systems
(2) External agents vs. internal change (relief vs. sustainability) and
(3) Connection of debt relief to poverty relief

He then opened the floor to questions:

- Ms Elliott noted the impossibility of grant money being able to eliminate all debt. The World Bank has focused on giving countries the fiscal room to borrow and use resources effectively by eliminating debt overhang.

- Using conditionality as a tool to fight governmental corruption was also brought to the discussion. Mr Rand found a problem because the polity is unable to identify with conditionality; instead, it creates a civil services bureaucracy and an administrative burden.

- Additionally, Ms Elliott noted a recent World Bank project aimed towards debt management, an objective previously discarded by the organization.

- Mr Rand noted a gap between aid and poverty reduction by richer nations, specifically mentioning the modern cases of Iraq and Nigeria. He also noted the lack of transparency in aid - both for taxpayers in creditor countries and intended recipients. This would incentivise good debt management. He also found the institutions managing creditors and debtors on the international level to be lacking the clarity of the institutions on the national level.

- Ms Granville contrasted the African experience to the experience of the Asian Financial Crisis; she deemed it the difference between bailing out (Africa) and bailing in (Asia).

Mr Killick concluded by thanking the speakers and noting the high degree of controversy which still surrounds the issue of debt.

Description

This meeting was a launch and discussion of a recent report from the Independent Evaluation Group (IEG) of the World Bank on the HIPC initiative, entitled "Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative."