This paper has been prepared by an independent expert group to explore how the link between debt relief and poverty reduction (PR) may be strengthened in the modalities for HIPC II and to examine the wider implications for donors and aid arising from the new debt relief initiative. It draws particularly from experience of the Sub Saharan African countries and the work commissioned by the Special Programme for Africa (SPA).

The starting point is the perspective that PR is a long-term process going well beyond HIPC operations. It is not just about social spending priorities. It requires a comprehensive approach involving a whole range of policies, expenditures, administrative and political processes and capacities. Nevertheless the Cologne initiative provides a very welcome impetus to PR and potentially significant additional resources for the HIPC countries to pursue it.

First, we suggest a new approach to performance conditions/criteria for meeting poverty reduction (PR) objectives under HIPC II which include the following recommendations. Second, it proposes changes to maximise the contribution of HIPC to poverty reduction including the following recommendations. Third, donors generally need to focus on the wider implications of the adoption of HIPC.