Developing Countries: Status of the Heavily Indebted Poor Countries Debt Relief Initiative

In response to a call from the leaders of the major industrial nations for a comprehensive approach to the debt problems of the poorest countries, the World Bank and the International Monetary Fund IMF proposed the Heavily Indebted Poor Countries HIPC Debt Initiative in 1996. The initiative reflects concerns of creditors, including the United States, that, even after receiving debt relief through existing mechanisms, some poor countries will have debt burdens that remain too large relative to their ability to pay. The stated goal of the HIPC initiative is to bring countries debts to levels that are sustainable, meaning that in the future they can make debt payments on time and without rescheduling. As a condition of receiving debt relief, countries undertake economic and social reforms. Expressing concern about whether the HIPC initiative could realistically be expected to solve these poor countries debt problems and whether they are likely to need further debt relief in the future, the Chairman of the Subcommittee on International Economic Policy, Export and Trade Promotion, Senate Committee on Foreign Relations, asked GAO to review the HIPC initiative. As requested, thIs report 1 describes the implementation of the HIPC initiative and 2 assesses the initiatives potential to achieve its stated goal. Because it is still relatively early in the implementation of the HIPC initiative, this report presents a preliminary assessment of its likely effects.