Debt Reduction: Initiatives for the Most Heavily Indebted Poor Countries

Debt Reduction: Initiatives for the Most Heavily Indebted Poor Countries

Order Code RL30214
CRS Report for Congress
Received through the CRS Web
Debt Reduction: Initiatives for the
Most Heavily Indebted Poor Countries
February 1, 2000
(name redacted)
Specialist in Foreign Affairs
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

ABSTRACT
This report offers a broad overview of the debate concerning debt reduction for poor
developing countries. It profiles the scope and structure of debt and reviews previous debt
relief strategies and the current HIPC Initiative. It analyzes and compares competing
alternatives endorsed by the Administration, congressional activists, NGOs, and other G-7
governments. Several key issues, such as costs, impact, and conditionality, of pending
proposals are also assessed. The report will be updated to reflect new debt relief proposals
and congressional debate.

Debt Reduction: Initiatives for the
Most Heavily Indebted Poor Countries
Summary
Many developing nations have experienced declining economic conditions while
accumulating higher levels of debt, largely owed to multilateral public lending
agencies, such as the World Bank and the IMF, and to foreign governments, including
the United States. For the 41 nations that have been identified as the most Heavily
Indebted Poor Countries (HIPC), external long-term debt rose rapidly from less than
$7 billion in 1970, to $47 billion a decade later, to $158 billion by 1990, and to $169
billion today. The largest portion — 85% — is owed to public lenders (governments
and institutions like the World Bank). Although roughly half of the HIPC long-term
debt is owed to bilateral lenders, only 3.7% is owed to the United States.
Since 1989, the U.S., Japan, and major European governments, recognizing that
the mounting debt burden for some borrowers has undermined efforts to stimulate
economic growth and to finance basic social programs, have extended a series of
increasingly broad debt relief arrangements. The most recent initiative — HIPC —
aims to reduce the debt burden of poor countries that have demonstrated sound
economic and social policy reforms to manageable, or “sustainable” levels that can be
serviced comfortably by export revenues and capital inflows. When it was launched,
poor country debt relief proponents hailed the initiative for its comprehensive and
integrated approach, especially the inclusion of World Bank and IMF participation,
and for its objective to provide lasting debt solutions.
But after three years, only four countries fully qualified for HIPC debt reduction
terms and strong international pressure built to expand and deepen HIPC terms.
Critics argued that it takes countries too long to qualify, that the conditions for
eligibility are inappropriate, and that the poverty reduction focus is insufficient. U.S.
and other G-7 leaders forged an agreement for expanding HIPC at the June 18-20,
2000 summit in Germany, the contents of which were adopted by the World Bank and
the IMF at their annual meetings in September.
Several legislative initiatives were introduced in 1999. H.R. 1095
(Representative Leach), would reform HIPC by providing debt relief more quickly,
to more countries, and in greater amounts, with an emphasis on poverty reduction.
Senator Mack introduced similar legislation (S. 1690), recommending that debt relief
savings finance both poverty and economic reform activities. Other legislation
includes H.R. 2232 (Representative Waters), H.R. 3049 (Representatives McKinney
and Rohrabacher), H.R. 772 (Representative Jackson), and S. 1636, a modified
companion measure to H.R. 772 (Senator Feingold).
As one of the final legislative issues of the first session, Congress agreed (H.R.
3422), to $123 million for bilateral debt reduction in FY2000 and (in H.R. 3425) to
authorize U.S. support for an off-market IMF gold sale to finance the Fund’s
participation in HIPC. (Each bill was incorporated into the Consolidated
Appropraitions Act, FY2000, P.L. 106-113.) But lawmakers did not approve an
additional $847 million requested by the President for debt relief through FY2003 and
barred the U.S. to use any of the $123 million this year for multilateral debt reduction
and contributions to the HIPC Trust Fund.

Contents
Debt Profile of the Most Heavily Indebted Nations . . . . . . . . . . . . . . . . . . . . . . 2
Evolution of Debt Reduction Programs for Poor Nations . . . . . . . . . . . . . . . . . . 7
Paris Club Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
U.S. Debt Reduction Programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Heavily Indebted Poor Country (HIPC) Initiative . . . . . . . . . . . . . . . . . . . . . . . 13
Overview of the HIPC Initiative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
HIPC Eligibility Criteria . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
HIPC Timing and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Financing HIPC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
HIPC Contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Country Eligibility and Timing of HIPC Implementation . . . . . . . . . . . . . . 19
Critics, Proposals for Reform, and HIPC Expansion . . . . . . . . . . . . . . . . . . . . 19
Setting the Stage for HIPC Expansion . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
U.S. Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
World Bank/IMF and G-7 Proposals . . . . . . . . . . . . . . . . . . . . . . . . 20
Congressional Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Critics Views of HIPC, Proposals for Change, and the Response . . . . . . . 24
HIPC Debt Relief Comes Too Slowly . . . . . . . . . . . . . . . . . . . . . . . . 24
Debt Sustainability Definitions and Targets Are
Limited or Inappropriate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Performance Requirements Are Flawed . . . . . . . . . . . . . . . . . . . . . . 28
Cost Implications of Enhanced HIPC Debt Relief Measures . . . . . . . . . . . 31
Cost Burden-sharing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
List of Figures
Figure 1. HIPC Debt 1998, by Type of Creditor . . . . . . . . . . . . . . . . . . . . . . . . 2
Figure 2. HIPC Country Long Term Debt: 1970-1998 . . . . . . . . . . . . . . . . . . . . 3
List of Tables
Table 1. Debt Profile of HIPC Countries, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . 4
Table 2. Debt Profile of Sub-Saharan Africa Countries, 1997 . . . . . . . . . . . . . . 6
Table 3. U.S. Debt Reduction, 1989-1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 4. U.S. Sovereign Debt Owed by HIPC and Other Countries . . . . . . . . . 10
Table 5. Selected Debt Ratios of HIPC and Other Countries . . . . . . . . . . . . . . 17
Table 7. Comparison of Debt Reduction Initiatives—Existing and Proposed . . 34

Debt Reduction: Initiatives for the
Most Heavily Indebted Poor Countries
For the past several decades, the United States, other industrialized nations, and
international financial institutions have extended considerable financial assistance,
provided as both loans and grants to developing countries — with mixed results.1
Many developing nations have experienced declining economic conditions while at the
same time accumulating higher levels of debt, largely owed to multilateral public
lending agencies, such as the World Bank and the IMF, and to foreign governments,
known as “bilateral” lenders, including the United States, Germany, France, Great
Britain, and others. Since 1989, the United States, Japan, and major European
governments, recognizing that for some borrowers the mounting debt burden
undermined efforts to stimulate economic growth and to finance basic social
programs, have extended a series of increasingly broad debt relief arrangements.

Despite these efforts, economic difficulties for the world’s most heavily indebted
poor nations persist. In sub-Saharan Africa, home to most of these heavily indebted
countries, after several years of improving economic performance, economic growth
slowed to 2.1% in 1998 and per capita income fell by 1%. Debt is not the sole cause
of this slowdown, but it is noteworthy that in 1998, total debt stock for African
nations grew to about $226 billion, up from $219 billion the year before. Net foreign
aid and other official transfers remained stagnant at about $12 billion in 1998, but
have declined overall by more than 50% in real terms during the 1990s.2
A broad consensus emerged among creditor governments and public institutions,
poor debtor countries, and non-governmental organizations (NGOs) that more
aggressive debt relief measures — centered around the World Bank/IMF Heavily
Indebted Poor Country (HIPC) Initiative — should be pursued. At their September
1999 annual meetings, the World Bank and IMF endorsed a substantial expansion of
HIPC, including steps that will increase the number of qualifying countries, provide
larger amounts of debt relief, potentially shorten the time required for receiving debt
reduction, and strengthen the program’s impact on poverty reduction. Nevertheless,
questions remain on how these measures will be implemented and how donor
organizations and governments will pay for the costs of a more expansive HIPC.

Many issues related to an expanded HIPC are raised in an array of executive and
legislative debt reduction proposals enacted and pending in the 106th Congress.
President Clinton initially proposed $120 million for FY2000 debt relief funding, a
figure that was subsequently increased to $970 million (over four years) in a
1 For a recent analysis of the successes and failures of foreign aid, see Assessing Aid: What
Works, What Doesn't, and Why, A World Bank Policy Research Report 1998.
2 World Bank, Global Development Finance, 1999, p. 168-170.

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September 21, 1999, budget amendment to the Foreign Operations appropriations
request. Congress approved in mid-November only $123 million of the
recommendation in H.R. 3422, leaving much of the debate over funding for 2000.
Congress also authorized in H.R. 3425 a mechanism that allows the IMF to revalue
a portion of its gold holdings so that the Fund can pay for its costs of canceling debt
owed to it by HIPC countries. (The legislation, however, allows the IMF to use only
a part of the “profit” generated by the gold transaction for HIPC relief. Congressional
leaders said they would review the issue in 2000 and consider Administration requests
to lift the limitation.) H.R. 3425 further supports the expansion of U.S. debt
reduction programs largely along the lines endorsed by the President, the G-7, and the
World Bank and IMF.3 Still pending are other congressional initiatives introduced in
the 106th Congress, some of which go beyond current Administration and World
Bank/IMF plans for an expanded HIPC program or which introduce different
qualification criteria for debtor country participation.
This report offers a broad overview of the debate concerning debt reduction for
poor developing countries. It profiles the scope and structure of debt and reviews
previous debt relief strategies and the current HIPC Initiative. It analyzes and
compares competing alternatives endorsed by the Administration, congressional
activists, NGOs, and other G-7 governments. Several key issues, such as costs,
impact, and conditionality, of pending proposals are also assessed.
Debt Profile of the Most Heavily Indebted Nations
For the 41 nations which have been identified by the World Bank and IMF as the
most heavily indebted poor
Figure 1. HIPC Debt 1998, by Type of Creditor
countries (HIPC countries), external
debt rose rapidly in the 1970s and
1980s.4 From less than $7 billion in
Bilateral Debt
1970, long-term debt obligations
50.3%
grew to $47 billion a decade later,
and to $158 billion by 1990. Debt
accumulation during the 1980s was
affected especially by the 1979 oil
Multilateral Debt
crisis, rising interest rates, and
34.8%
falling global commodity prices for
goods developing countries
Private Debt
produced. Debt levels have been
14.9%
more stable in the 1990s as private
creditors scaled back on their
Source: World Bank
lending and public lenders
(governments and international financial institutions) shifted from loans to grant
3 Congress passed both H.R. 3422 and H.R. 3425 as part of the Consolidated Appropriations
Act, FY2000 (P.L. 106-113).
4 Unless otherwise noted, the source for the debt figures in this section is the World Bank’s
Global Development Finance, 1999.

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foreign aid. HIPC country long-term debt peaked at about $185 billion in 1995, fell
back to $163 billion by 1997, but is estimated to have increased to $169 billion in
1998.
Tables 1 and 2 provide specific details on debt owed by these 41 countries,
including how much debt is owed to the United States. One of the most striking
characteristics of the debt burden of the HIPC countries is the large proportion that
is owed to public lenders rather than the private sector. As illustrated in Figure 1, the
World Bank estimates that creditor governments and institutions account for more
than 85% of HIPC debt obligations. By comparison, only 28% of Latin American
long-term debt is owed to public lenders. For all developing nations, the amount is
42%.
Although roughly half of the HIPC long-term debt is owed to bilateral lenders,
as shown in Table 4 (page 10), only a small amount is owed to the United States:$6
billion at the end of 1997, or 3.7% of total long-term HIPC debt. For 23 of the 41
HIPC nations, outstanding debt to the U.S. totals less than 1% of their outstanding
obligations. Only for a few countries — Democratic Republic of Congo, Liberia,
Somalia, and Sudan — does U.S. debt represent a sizable portion of overall stock.5
Figure 2. HIPC Country Long Term Debt: 1970-1998
$175
$150
$125
Private Debt
Multilateral Debt
Bilateral Debt
$100
$75
$50
$25
$0
1970
1980
1990
1997
1998
Source: World Bank
5 U.S. Department of Treasury. Various tables.

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Table 1. Debt Profile of HIPC Countries, 1997
($s — millions)
Long-Term Debt
Long-Term Debt, of which owed
to:
Public &
Private
Total Debt
Publically
Non-
Non-
Multi-
US
Other
Stock
Guaranteed
Guaranteed
Concessional
Concessional
laterals
Govt
Bilaterals
Angola
10,160
8,885
0
2,230
6,655
234
35
2,623
Benin
1,624
1,393
0
1,265
128
871
0
519
Bolivia
5,248
4,144
426
2,965
1,605
2,681
91
1,344
Burkina Faso
1,297
1,139
0
1,077
62
1,003
0
132
Burundi
1,066
1,022
0
989
33
872
0
149
Cameroon
9,293
7,688
198
3,955
3,931
1,465
66
5,569
CAR
885
804
0
727
77
607
9
174
Chad
1,027
939
0
804
135
749
0
173
Congo, DR of
12,330
8,617
0
3,103
5,514
2,179
2,080
3,524
Congo, Rep of
5,071
4,284
0
1,554
2,730
619
58
2,774
Cote D’Ivoire
15,609
10,427
2,071
4,507
7,991
3,301
378
4,181
Equatorial Guinea
283
209
0
139
70
94
0
101
Ethiopia
10,079
9,427
0
8,633
794
2,459
90
6,523
Ghana
5,982
4,691
267
3,975
983
3,179
16
1,051
Guinea
3,520
3,008
0
2,484
524
1,557
111
1,269
Guinea-Bissau
921
838
0
666
172
387
0
451
Guyana
1,611
1,345
0
909
436
666
31
592
Honduras
4,698
3,910
259
2,287
1,882
2,303
151
1,261
Kenya
6,486
5,108
325
3,727
1,706
2,785
126
1,695
Laos
2,320
2,247
0
2,243
4
816
0
1,431
Liberia
2,012
1,061
0
585
476
405
333
132
Madagascar
4,105
3,871
0
2,679
1,192
1,661
33
2,133
Malawi
2,206
2,073
0
1,947
126
1,791
0
261

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Long-Term Debt
Long-Term Debt, of which owed
to:
Public &
Private
Total Debt
Publically
Non-
Non-
Multi-
US
Other
Stock
Guaranteed
Guaranteed
Concessional
Concessional
laterals
Govt
Bilaterals
Mali
2,945
2,687
0
2,621
66
1,453
0
1,234
Mauritania
2,453
2,037
0
1,698
339
938
7
1,068
Mozambique
5,991
5,430
45
3,385
2,090
1,626
49
3,737
Myanmar
5,074
4,640
0
4,090
550
1,171
0
3,012
Nicaragua
5,677
4,819
0
2,509
2,310
1,571
100
2,756
Niger
1,579
1,331
96
1,057
370
881
13
437
Rwanda
1,111
994
0
986
8
850
1
141
Sao Tome&Principe
261
227
0
223
4
156
0
71
Senegal
3,671
3,110
55
2,395
770
1,803
17
1,280
Sierra Leone
1,149
893
0
733
160
494
64
329
Somalia
2,561
1,853
0
1,503
350
723
431
664
Sudan
16,326
8,998
496
4,636
4,858
2,001
1,202
4,319
Tanzania
7,177
6,054
41
5,091
1,004
2,939
35
2,827
Togo
1,339
1,207
0
955
252
717
0
491
Uganda
3,708
3,202
0
2,950
252
2,399
3
723
Vietnam
21,629
18,839
0
3,209
15,630
828
136
13,138
Yemen
3,856
3,418
0
2,411
1,007
1,390
102
1,089
Zambia
6,758
5,233
13
3,797
1,449
2,227
278
2,586
Total, HIPC
201,098
162,102
4,292
97,699
68,695
56,851
6,046
77,964
Sources:
World Bank, Global Development Finance, 1999
U.S. Department of the Treasury.
Note: U.S. debt figures include private debt guaranteed by the U.S. government.

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Table 2. Debt Profile of Sub-Saharan Africa Countries, 1997
($s — millions)
Long-Term Debt
Long-Term Debt, of which owed
to:
Public &
Private
Total Debt
Publically
Non-
Non-
Multi-
US
Other
Stock
Guaranteed
Guaranteed
Concessional
Concessional
laterals
Govt
Bilaterals
Africa
HIPC countries*
147,752
118,740
3,607
77,076
45,271
45,421
5,436
53,341
Africa Non-HIPC countries:
Botswana
562
562
0
290
232
383
15
79
Cape Verde
220
211
0
172
39
159
0
39
Comoros
197
181
0
173
8
151
0
30
Djibouti
284
253
0
252
1
136
0
117
Eritrea
76
76
0
73
3
42
0
34
Gabon
4,285
3,671
0
971
2,700
528
81
2,932
Gambia
430
407
0
394
13
326
0
81
Lesotho
660
624
0
487
137
468
0
113
Mauritius
2,472
1,187
789
344
1,632
245
3
297
Nigeria
28,455
22,361
295
1,322
21,604
4,013
871
12,074
Seychelles
149
131
0
68
63
54
0
52
South Africa
25,222
11,246
2,633
0
13,879
0
3
0
Zimbabwe
4,961
3,124
475
1,398
2,201
1,616
53
699
Total, Africa
215,725
162,774
7,799
83,020
87,783
53,542
6,462
69,888
Sources: World Bank, Global Development Finance, 1999; and U.S. Department of the Treasury.
* See Table 1 for individual country data.

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Evolution of Debt Reduction Programs for Poor Nations
For the past decade, members of the G-7 have taken the lead for initiating plans
to reduce or cancel public debt owed to them by severely indebted developing
nations.6 Through the Paris Club, an informal forum of creditor governments that
review, negotiate, and adopt debt relief programs for poor countries, the United
States, Germany, Japan, France, and others have implemented a series of debt
measures. Prior to 1988, the Paris Club generally engaged only in rescheduling, but
not reducing debt. This solved immediate debt servicing crises, but offered no
permanent relief. In some cases, reschedulings fueled mounting debt stocks of
developing nations, ultimately setting the stage for a subsequent financial emergency.
Paris Club Arrangements. Following the 1988 G-7 meeting in Toronto, the
Paris Club endorsed a menu of debt relief options through which heavily indebted
countries could receive forgiveness for as much as one-third of the net present value
(NPV)7 of their public bilateral non-concessional debt that was eligible for
rescheduling. Eligible debt included portions that were in arrears or due in the next
18 to 24 months, but not amounts previously rescheduled. These so-called “Toronto
Terms” were broadened three years later at the G-7 conference in London where
creditor countries agreed to implement “Enhanced Toronto Terms” and reduce up to
50 percent of NPV of eligible poor country public non-concessional debt. Between
1988 and 1995, Paris Club members rescheduled under Toronto and Enhanced
Toronto Terms about $14.8 billion of debt owed primarily by African nations.
The Paris Club further expanded debt reduction options following the 1994 G-7
summit in Naples. Under what became known as “Naples Terms,” developing
countries could receive forgiveness for up to two-thirds of their total NPV of non-
concessional debt (not just the portion eligible for rescheduling). Paris Club members
continue to use Naples Terms today, although for those countries which qualify, even
more generous HIPC terms are applied (see below for a discussion of HIPC).
U.S. Debt Reduction Programs. The United States did not participate in Paris
Club debt reduction initiatives until 1994, although independently, the U.S. forgave
about $3.58 billion in poor country debt in the late 1980s and early 1990s, and an
additional $10.2 billion in debt owed by Egypt, Poland, and Jordan, 1990-1995. Each
of these arrangements were implemented under special authorities legislated, and in
some cases, initiated by Congress:
! Sec. 572 Debt Relief — Section 572 of the Foreign Operations
Appropriations for FY1989 (P.L. 100-461), authorized the President
6 Much of this discussion of the history of bilateral debt reduction initiatives is drawn from,
Africa’s Debt Burden: Proposals for Further Forgiveness, by (name redacted). CSIS
Africa Notes, Number 189, October 1996.
7 In evaluating a country’s debt burden, analysts generally examine the debt’s net present
value (NPV) rather than its face value. The NPV of debt takes into account the degree of
concessionality — that is, the extent to which loans carry interest rates below market levels.
If a loan has an interest rate below the market rate, the NPV of debt will be smaller than the
face value, with the difference reflecting the concessional element of the loan.

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to cancel debt from development assistance concessional loans owed
by African and other relatively least developed countries that
maintained economic reform programs with the World Bank or IMF.
Over a three year period, the United States forgave 100% of $2.02
billion owed by 17 African countries, four Latin American nations,
and Bangladesh. As a result of this initiative, and because the United
States had shifted in the early 1980s to grant rather than loan aid, a
relatively small amount of concessional debt is still owed to the
United States by heavily indebted nations in Africa and elsewhere.
! Sec. 411 Debt — Section 411 of the Agricultural Trade
Development and Assistance Act, more commonly referred to as P.L.
480, authorizes the forgiveness of concessional food aid loans held
by least developed countries that are either pursuing their own
economic reform program or have programs with the IMF or World
Bank. In 1991-92, the United States canceled $689 million of food
aid loans for 12 African and Latin American nations.
! Enterprise for the Americas Initiative (EAI) Debt — Enacted in
1990, the EAI supported economic growth goals for Latin American
and Caribbean nations. One element of the Initiative authorized the
President to forgive concessional food aid loans to any EAI-eligible
country. Through 1993, the United States canceled $875 million in
debt owed by Latin American countries that did not meet the “least
developed” criteria under the Sec. 411 debt reduction program.
Most debt relief went to El Salvador and Jamaica.
! Egypt Debt Forgiveness — In recognition of the security risks taken
by Egypt in signing a peace accord with Israel in 1979 and of Egypt’s
leadership in the Arab world following Iraq’s invasion of Kuwait in
1990, the President asked and Congress approved the cancellation of
military aid loans totaling $7 billion (Foreign Operations
Appropriations, 1991, P.L. 101-513). Much of this debt had been
incurred during the early 1980s when the United States provided
most military assistance as loans bearing commercial interest rate
terms.
! Polish Debt Relief — With the collapse of Soviet control over
Eastern Europe, the United States took several steps to help the
emerging states transition to democratic governments and market
economies. Under a special provision in the Foreign Operations
Appropriations for FY1991 (P.L. 101-513), the U.S. canceled $2.46
billion in agricultural credits owed by Poland.
! Jordan Debt Relief — Following the signing of an Israeli-Jordan
peace agreement in 1994, Congress approved the President’s request
to relieve some of Jordan’s debt to the United States. Through
authority granted in the Foreign Operations Appropriations, 1995
(P.L. 103-306), and subsequent appropriation measures, the U.S.
forgave $698 million of Jordan’s debt.

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Table 3. U.S. Debt Reduction, 1989-1998
($s — millions)
Debt Reduction Authority
Paris Club/
Special
Date
Sec 572
Sec 411
EAI
HIPC
Legisl.
Total
Grand Total
2,051.6
689.1
840.1
732.1
10,161.1
14,474.0
Africa:
720.1
416.2
0.0
482.1
0.0
1,618.4
Benin
1989-91
29.8
---
---
---
---
29.8
Burkina Faso
1991
2.4
---
---
---
---
2.4
Cameroon
1991/98
61.4
---
---
20.3
---
81.7
CAR
1994-98
---
---
---
7.0
---
7.0
Congo, DRO
1990-91
54.1
---
---
---
---
54.1
Congo, Rep
1996
---
---
---
10.7
---
10.7
Cote d’Ivoire
1990/98
17.9
---
---
220.4
---
238.3
Ghana
1990-91
83.7
95.8
---
---
---
179.5
Guinea
1989/97
4.5
---
---
4.3
---
8.8
Kenya
1989
85.9
102.0
---
---
---
187.9
Madagascar
1990/97
5.6
53.4
---
24.8
---
83.8
Malawi
1990-91
29.5
2.2
---
---
---
31.7
Mali
1990-91
5.1
---
---
---
---
5.1
Mozambique
1989/96
---
52.9
---
47.4
---
100.3
Niger
1994-96
6.9
---
---
8.5
---
15.4
Nigeria
1990-91
64.8
---
---
---
---
64.8
Rwanda
1998
---
---
---
.9
---
0.9
Senegal
1989/94
---
34.5
---
10.2
---
44.7
Tanzania
1991/97
79.7
59.1
---
18.9
---
157.7
Togo
1989
7.4
---
---
---
---
7.4
Uganda
1991/98
8.6
16.3
---
.9
---
25.8
Zambia
1989/96
172.8
---
---
107.8
---
280.6
Latin Amer.
1,039.9
272.9
840.1
213.3
---
2,366.2
Argentina
1993
---
---
3.8
---
---
3.8
Bolivia
1991/95
339.6
---
30.7
58.6
---
428.9
Chile
1991
30.6
---
---
---
30.6
Colombia
1992
---
---
31.0
---
---
31.0
El Salvador
1992
---
---
463.9
---
---
463.9
Guyana
1992/96
76.3
40.3
---
9.9
---
126.5
Haiti
1991/95
---
98.9
---
7.9
---
106.8
Honduras
1991/96
333.9
108.9
---
77.0
---
519.8
Jamaica
1991
---
---
310.8
---
---
310.8
Nicaragua
1991/98
259.5
24.8
---
59.9
344.2
Uruguay
1991
---
---
3.7
---
---
3.7
Other
291.6
---
---
36.7
10,161.1
10,489.4
Bangladesh
1991
291.6
---
---
---
---
291.6
Bosnia
1998
---
---
---
36.7
---
36.7
Poland
1991
---
---
---
---
2,464.7
2,464.7
Egypt
1990
---
---
---
---
6,998.1
6,998.1
Jordan
1995-98
---
---
---
---
698.3
698.3
Source: U.S. Department of the Treasury.

CRS-10
Table 4. U.S. Sovereign Debt Owed by HIPC and Other Countries
(as of December 31, 1997 — $s - millions)
Non-Concessional Debt
US Debt
Concession
as % of
Direct
Private Loans
al
Total
World
US
Guaranteed by
Debt
Debt
Debt*
Loans
US
HIPC:
Angola
28
7
0
35
0.4%
Benin
0
0
0
0
0.0%
Bolivia
24
53
14
91
2.2%
Burkina Faso
0
0
0
0
0.0%
Burundi
0
0
0
0
0.0%
Cameroon
0
57
9
66
0.9%
CAR
0
9
0
9
1.1%
Chad
0
0
0
0
0.0%
Congo, DR of
445
1,635
0
2,080
24.1%
Congo, Rep of
32
26
0
58
1.4%
Cote D’Ivoire
91
241
46
378
3.6%
Equatorial Guinea
0
0
0
0
0.0%
Ethiopia
88
2
0
90
1.0%
Ghana
0
8
8
16
0.3%
Guinea
103
8
0
111
3.7%
Guinea-Bissau
0
0
0
0
0.0%
Guyana
25
6
0
31
2.3%
Honduras
0
89
58
147
3.8%
Kenya
38
49
39
126
2.5%
Laos
0
0
0
0
0.0%
Liberia
257
76
0
333
31.4%
Madagascar
0
33
0
33
0.9%
Malawi
0
0
0
0
0.0%
Mali
0
0
0
0
0.0%
Mauritania
0
7
0
7
0.3%
Mozambique
0
49
0
49
0.9%
Myanmar
3
0
0
3
0.1%
Nicaragua
18
81
2
101
2.1%
Niger
0
13
0
13
1.0%
Rwanda
0
0
1
1
0.1%
Sao Tome&Principe
0
0
0
0
0.0%
Senegal
0
17
0
17
0.5%
Sierra Leone
64
0
0
64
7.2%

CRS-11
Non-Concessional Debt
US Debt
Concession
as % of
Direct
Private Loans
al
Total
World
US
Guaranteed by
Debt
Debt
Debt*
Loans
US
Somalia
201
230
0
431
23.3%
Sudan
493
709
0
1,202
13.4%
Tanzania
0
31
4
35
0.6%
Togo
0
0
0
0
0.0%
Uganda
0
1
2
3
0.1%
Vietnam
136
0
0
136
0.7%
Yemen
99
3
0
102
3.0%
Zambia
134
144
0
278
5.3%
Total, HIPC
2,279
3,584
183
6,046
3.7%
Non-HIPC Africa:
Botswana
15
0
9
24
4.6%
Cape Verde
0
0
0
0
0.0%
Comoros
0
0
0
0
0.0%
Djibouti
0
0
0
0
0.0%
Eritrea
0
0
0
0
0.0%
Gabon
0
81
0
81
2.2%
Gambia
0
0
0
0
0.0%
Lesotho
0
0
0
0
0.0%
Mauritius
3
0
5
8
0.7%
Nigeria
0
871
26
897
4.0%
Seychelles
0
0
0
0
0.0%
South Africa
0
3
141
144
1.3%
Swaziland
9
0
0
9
0.1%
Zimbabwe
52
0
151
203
6.5%
Memo Item:
Total Africa
2,053
4,307
441
6,801
4.2%
Other “IDA-Only”:
Albania
0
0
0
0
0.0%
Bangladesh
502
0
13
515
3.5%
Cambodia
361
0
0
361
17.8%
Haiti
16
4
0
20
2.2%
Mongolia
0
0
0
0
0.0%
Nepal
1
0
27
28
1.2%
Sri Lanka
687
0
125
812
12.2%
Tajikistan
26
0
0
26
3.9%
Source: U.S. Department of the Treasury.
*U.S. debt owed as a % of total worldwide long-term public and publically-guaranteed debt.

CRS-12
Under authority first granted by Congress in 1993 (Foreign Operations
Appropriations, section 570, P.L. 103-87), the United States began in 1994 to
participate in Paris Club arrangements to reduce non-concessional debt owed by
developing nations with strong economic reform records. This authority, which has
been annually re-enacted in each Foreign Operations measure since 1993, allows the
U.S. to cancel partial repayment on loans issued under U.S. Agency for International
Development (USAID) housing and other credit programs, military aid loans,
Export-Import Bank loans and guarantees, and, for Latin American nations,
agriculture credits guaranteed by the Commodity Credit Corporation. All of these
loans and loan guarantees are made on non-concessional terms.
In order to be eligible, countries must be able to borrow only from the World
Bank’s concessionary loan window, the International Development Association
(IDA),8 and comply with a series of standards regarding excessive military
expenditures, terrorism, narcotics control, and human rights. Since 1994, the United
States has reduced $732 million in non-concessional debt through the Paris Club, on
both Naples and HIPC terms.
Two new U.S. bilateral debt reduction programs took shape in 1998. As one
element of the President’s Africa Initiative to boost trade, investment, and
development opportunities, the United States intends to cancel 100% of concessional
debt owed by the strongest performing African nations. Only about $2.1 billion in
concessional debt remains, however, and most — $1.44 billion — is owed by poorly
performing countries mired in conflict and without near-term prospects for economic
recovery: Congo/Zaire, Liberia, Sierra Leone, Somalia, and Sudan.
The second new program — Debt Relief for Tropical Rainforest Countries —
originated in Congress and was enacted into law in P.L. 105-214. Modeled after the
EAI debt relief program, it authorizes the President to buy back, swap, or cancel
concessional U.S. economic and food aid loans in order to generate local currencies
that will be used to support tropical forest conservation programs.
8 Such countries are commonly referred to as “IDA-only” nations. In most cases, the World
Bank designates countries with a 1997 per capita GNP of less than $925 as IDA-only
borrowers.

CRS-13
Calculating the Cost of Debt Reduction Initiatives and the Role of Congress
As noted in the discussion above, Congress must authorize U.S. participation in new debt
reduction programs. Under provisions of the Federal Credit Reform Act of 1990, Congress
must also appropriate, in advance, the anticipated costs to the U.S. government of canceling
such debt. The appropriated amount, which is usually included in the annual Foreign
Operations spending measure, equals the estimated loss to the U.S. treasury of implementing
the debt reduction agreement. Each year’s federal budget assumes that a certain amount of loan
reflows, or off-setting receipts, will be received. Over time, the appropriation off-sets the loss
of these reflows.
The calculation of how much money must be appropriated to reduce or cancel a certain
amount of debt is complicated, and depends on a number of factors including the value of debt
(whether it is concessional or non-concessional) and the likelihood of repayment by the debtor.
For loans that bear interest rates at or above current levels that were made to countries with a
good repayment history, the amount of appropriations will be much higher than for concessional
loans to countries that pay late or default. For example, during the 1990s Congress
appropriated $386 million to cancel roughly $700 million of debt owed by Jordan. Since Jordan
had a good debt service record and held loans bearing above market interest rates, Jordan’s debt
forgiveness was a more “expensive” initiative in budget terms. On the other hand, for the
poorest countries that have less capacity to service their debt, which consists mainly of highly
concessional loans, the cost and the appropriation is much smaller. In FY1999, the Treasury
Department estimated that it would use $43 million appropriated the previous two years to
cancel $376 million (face value) of debt owed by 11 HIPC countries. In other words, Jordan’s
debt was more “valuable” to the U.S. government in terms of anticipated repayment than loans
made to poorer countries.
Heavily Indebted Poor Country (HIPC) Initiative
The series of incremental and sometimes uncoordinated debt rescheduling and
relief plans during the late 1980s and early 1990s did not produce the degree of
sustainable debt reduction that international aid agencies and debtor governments had
envisioned. The stock of long-term debt owed by the severely indebted low-income
countries actually grew from $61 billion in 1980, to $245 billion in 1995, while their
debt as a percent of exports had risen from 102% to 421% during the same period.
Further, the share of debt owed to international financial institutions (IFIs), such as
the World Bank, increased sharply in the early 1990s — from 21% in 1990 to 27%
in 1995.9
One of the major criticisms of earlier debt relief initiatives was the absence of
participation by the IFIs. World Bank and other IFI officials asserted that to engage
in debt reduction, they would have to pass the costs on to their middle-income
country borrowers. Instead, the IFIs increased lending on highly concessional terms
to the poorest countries. Nevertheless, under growing pressure from non-
governmental organizations and some creditor governments, especially Britain, the
9 World Bank, Global Development Finance, 1997, vol. I, p. 204.

CRS-14
World Bank and IMF sponsored the initiation in September 1996 of the Heavily
Indebted Poor Countries Debt (HIPC) Initiative. HIPC remains the centerpiece
international debt workout plan of today.
Overview of the HIPC Initiative
The intent of the HIPC Initiative is to reduce the debt burden of poor countries
that have demonstrated sound economic and social policy reforms to manageable, or
“sustainable” levels that can be serviced comfortably by export revenues and capital
inflows. When it was launched, poor country debt relief proponents hailed the
initiative for its comprehensive and integrated approach, especially the inclusion of IFI
participation, and for its objective to provide lasting debt solutions.
HIPC Eligibility Criteria. To be selected for possible HIPC status, countries
must meet specific criteria:
! receive only concessional financing from the World Bank and IMF
(that is, borrowing only from the World Bank’s International
Development Association (IDA) and from the IMF’s Enhanced
Structural Adjustment Facility (ESAF)).
! establish a track record of economic reforms under IMF and World
Bank-sponsored programs.
! hold a debt burden that is unsustainable under existing (Naples terms)
relief arrangements.
Through an initial analysis in 1996, the World Bank and IMF identified 41 heavily
indebted countries — the 41 HIPC countries.10
HIPC Timing and Terms. The HIPC process is divided into two phases.
During an initial three-year period, beginning at what is called the “entry point,”
countries must successfully follow World Bank and IMF adjustment programs. At
the conclusion of this phase, the Bank and Fund conduct a debt analysis to determine
whether a country still requires extraordinary debt relief beyond Naples terms. It was
presumed that during this three-year period, some countries might improve their
economic position to the extent that they could manage their debt burden without the
need for HIPC terms. The analysis is intended to determine whether the country can
service its debt based on a medium-term balance of payments projection. The
economic indicators used in the Bank/Fund analysis are the relationship between the
present value of external debt and the export of goods and services. For the first
three years of HIPC, if a country’s debt-to-export ratio fell above a range of 200-
250%, and debt service-to-exports exceeded 20-25%, its debt burden was categorized
as unsustainable, making the country eligible for HIPC terms. As discussed below,
critics charged that these thresholds were too high and prevented the cancellation of
sufficient debt to make a long-lasting difference. Consequently, the World Bank and
IMF have lowered the debt-to-export target to 150%.
10 See Table 1 for a list of HIPC countries. Originally, Nigeria was a HIPC country, but
because it is eligible for both concessional (IDA) and non-concessional World Bank loans, it
was removed from the list. Subsequently, Malawi was added.

CRS-15
At this stage of the process, known as the “decision point,” a country with
unsustainable debt may begin to receive from bilateral creditors a reduction of non-
concessional debt through Paris Club arrangements. During the first three years of
HIPC, creditor governments would cancel up to 80% of eligible debt (as opposed to
67% under Naples terms). G-7 leaders agreed, however, during their June 1999
summit, to increase the ceiling to 90%.11
At the decision point, countries begin a second period — originally three years,
but modified in September 1999 to an unspecified amount of time that may result in
more rapid qualification — during which they must continue to display good
performance under a Bank/Fund program. At the end of the second phase, referred
to as the “completion point,” a country becomes fully eligible for HIPC debt relief.
In addition to the 90% reduction from Paris Club debt, the World Bank, IMF and
other IFIs adjust debt levels to a “sustainable” amount — so that a country’s present
value of total debt as a percent of exports does not exceed 150%. Special treatment
may be given to nations with very open economies12 where the debt-to-export ratio
falls below 150%, but still face a heavy debt burden in relation to its fiscal revenues.
In these cases, creditors will reduce debt so that the present value of debt equals
250% of fiscal revenues.13 (For the first three years of HIPC, this target had been
280%.) Although debtor countries become fully eligible only at the completion point,
World Bank and IMF modifications in September 1999 will result in “interim” relief
by IFIs during the second stage, with a reduction in annual debt service payments
through what the IFIs are calling “front-loaded” assistance.
Financing HIPC. A key enhancement to previous debt reduction arrangements
introduced in the HIPC process is a more systematic method of burden-sharing of the
costs of implementing debt relief programs. Bilateral creditors, largely through the
Paris Club, meet the costs according to the budget rules that apply to their respective
national governments. In the case of the United States, Congress must appropriate
funds in advance of debt cancellation, providing an amount equal to the present value
of loans to be reduced. For poor countries, this can be a very small portion of the
loans’ face value — perhaps 10% or less.
The reduction of multilateral debt is financed through the IDA-managed HIPC
Trust Fund which receives resources in several ways. The World Bank pays for the
costs of canceling its loans by transferring net income and surplus from its market-rate
lending facility — the International Bank for Reconstruction and Development
(IBRD) — to the HIPC Trust Fund. The IMF initially covered the cost of its
11 G-7 leaders further adopted a U.S. proposal that they forgive 100% of concessional or
“foreign aid” debt owed by poor debtor countries. More recently, on September 29, President
Clinton announced that the United States was prepared to cancel 100% of all — concessional
and non-concessional debt — debt owed by HIPC countries, and urged others to follow.
Britain has endorsed the same policy while others have the issue under review.
12 Very open economies are those where the export-to-GDP ratio is higher than 40% and the
fiscal revenue-to-GDP ratio exceeds 20%.
13 Most countries have, or are expected to have their debt reduced based on the debt-to-exports
ratio. The World Bank estimates that three countries may receive assistance under the fiscal
criteria.

CRS-16
participation through an interim arrangement that drew on ESAF resources to service
debt obligations of eligible HIPC countries. In order to establish a permanent means
to cover IMF debt reduction costs, the IMF and several of its largest contributors
agreed on a plan to sell some of IMF’s gold holdings. Fearing that a large IMF gold
sale would further depress its value on global markets, U.S. gold firms and African
gold producing nations strongly objected to the proposal. At the September annual
meetings, the IMF and its members abandoned the gold sale approach, and instead
proposed to introduce a mechanism whereby the Fund would be able to “re-value”
about 14 million ounces of gold. This would generate enough money to pay the
IMF’s share of canceling HIPC country debt.14 Other IFIs, however, do not have
sufficient resources to fully cover their costs of reducing HIPC debt. As a result,
bilateral donors are asked to contribute to the HIPC Trust Fund to fill this financing
gap.
HIPC Contributions. As of December 31 1999, bilateral contributions to the
HIPC Trust Fund totaled $327 million. The Netherlands ($108 million) were the
largest donor. Pledges amounted to another $1.7 billion, including $600 million from
the United States.15 Germany ($80 million) Italy ($70 million), and the European
Union (about $730 million) are among those that have also made large pledges, but
not directly contributed. The U.K. says it will add $200 million to the $25 million
already paid. Germany, one of the other major aid donors that has not contributed to
the Trust Fund, has pledged DM 50 million.16 Notwithstanding these contributions,
the Treasury Department estimated in February 1999 — before the G-7 and World
Bank/IMF agreement to expand HIPC — that the HIPC Trust Fund faced a $2 billion
funding shortfall.17 With more recent estimates that show a doubling of the costs of
the HIPC initiative, the Trust Fund shortfall will be much greater.
14 The actual process by which the gold would be re-valued involves several steps. First, the
gold, which is carried on the IMF books at the original price of $48 per ounce, would be
purchased at current market value (over $260 per ounce) by a member country about to make
a large payment on an IMF loan. After buying the gold, the country will immediately make
its loan payment to the IMF, but in gold that it just purchased, rather than hard currency.
The IMF will invest the “profits” of its gold transaction in a security instrument and use the
earned interest to pay for the costs of canceling HIPC debt over a 20 year period. While many
IMF members have endorsed this approach, it requires the agreement of 85% of the Fund’s
voting shares. Congress must authorize U.S. support for the proposal, and since the United
States holds more than 15% of the votes, the gold re-valuation plan cannot be implemented
without U.S. — and congressional — approval.
15 Congress, in H.R. 2606, the FY2000 Foreign Operations Appropraitions, denied all HIPC
Trust Fund requests. President Clinton vetoed H.R. 2606, in part because of reduced funding
for debt relief. Subsequently, Congress increased (in P.L. 106-113) bilateral debt reducton
funding from $33 million in H.R. 2606 to $123 million, but blocked any of these funds for the
HIPC Trust Fund.
16 World Bank, HIPC Trust Fund -- Bilateral Donor Funding (as of Dec. 15, 1999).
Available online at the World Bank HIPC web site [http://www.worldbank.org/hipc].
17 U.S. Department of the Treasury. Treasury International Programs: Justification for
Appropriations, FY2000.

CRS-17
Table 5. Selected Debt Ratios of HIPC and Other Countries
(Present Value of Debt)
Debt as % of
Debt as % of
Debt Service as
Exports
GNP
% of Exports
1996
1997
1996
1997
1996
1997
HIPC:
Angola
219
165
310
200
13.3
15.9
Benin
215
160
57
46
6.8
9.1
Bolivia
270
270
57
51
30.9
32.5
Burkina Faso
241
161
31
29
10.8
11.8
Burundi
538
546
47
58
54.6
29.0
Cameroon
399
315
106
93
23.6
20.4
CAR
242
244
51
52
6.3
6.2
Chad
181
195
51
35
9.5
12.5
Congo, Dem. Rep. of
693
783
127
215
2.4
.9
Congo, Rep. of
342
249
260
247
11.7
6.2
Cote D’Ivoire
299
268
171
141
26.2
27.4
Equatorial Guinea
157
52
124
46
2.6
.5
Ethiopia
1,093
791
149
131
42.2
9.5
Ghana
208
229
56
58
26.4
29.5
Guinea
298
330
61
67
14.7
21.5
Guinea-Bissau
2,312
1,136
248
253
48.7
17.3
Guyana
236
134
252
145
15.1
14.4
Honduras
200
157
92
83
26.0
20.9
Kenya
177
161
64
49
27.5
21.5
Laos
177
217
45
53
6.3
6.5
Liberia
---
---
---
---
---
---
Madagascar
426
370
97
85
9.4
27.0
Malawi
294
182
76
46
18.6
12.4
Mali
261
240
56
72
17.9
10.5
Mauritania
318
377
157
169
21.7
24.2
Mozambique
1,344
785
411
171
32.3
18.6
Myanmar
296
289
34
---
---
8.0
Nicaragua
763
441
322
244
24.2
31.7
Niger
284
329
45
56
17.3
19.5
Rwanda
682
373
47
33
20.3
13.3
Sao Tome & Principe
2,268
1,146
651
382
31.5
53.8
Senegal
150
152
53
55
15.9
15.3
Sierra Leone
515
779
78
89
52.6
21.2
Somalia
---
---
---
---
---
---
Sudan
1,964
2,421
260
170
5.0
9.2
Tanzania
499
427
114
72
18.7
12.9

CRS-18
Debt as % of
Debt as % of
Debt Service as
Exports
GNP
% of Exports
1996
1997
1996
1997
1996
1997
Togo
191
129
80
60
10.8
8.1
Uganda
294
239
32
31
20.0
22.1
Vietnam
322
168
123
81
3.5
7.8
Yemen
160
75
88
56
2.4
2.6
Zambia
389
374
161
138
24.6
19.9
Total, HIPC
---
272
---
98
---
15.1
Non-HIPC Africa:
Botswana
17
---
11
9
4.9
---
Cape Verde
107
103
50
53
2.9
5.5
Comoros
334
331
96
102
2.3
3.9
Djibouti
132
122
61
57
5.4
3.1
Eritrea
6
9
3
4
.0
.1
Gabon
123
128
86
94
26.2
13.1
Gambia
113
97
64
57
1.4
11.6
Lesotho
69
62
33
35
6.1
6.4
Mauritius
73
92
45
55
7.2
10.9
Nigeria
240
148
114
72
16.0
7.8
Seychelles
46
40
30
28
4.7
4.0
South Africa
67
65
18
19
11.1
12.8
Zimbabwe
154
136
67
49
21.2
22.0
Other “IDA-Only”
Albania
101
99
32
22
3.5
7.1
Bangladesh
166
130
30
20
11.7
10.6
Cambodia
191
175
54
53
1.2
1.1
Haiti
297
272
30
21
13.2
15.9
Mongolia
65
89
36
47
9.7
11.7
Nepal
102
87
26
25
7.7
6.9
Sri Lanka
97
79
41
35
7.3
6.4
Tajikistan
69
86
24
34
.1
4.6
Sources:
World Bank, World Development Indicators, 1998 and 1999.
World Bank, Global Development Finance, 1999.

CRS-19
Country Eligibility and Timing of HIPC Implementation
On the basis of the most recent debt sustainability analysis and announcements
in September 1999 for the substantial expansion of HIPC terms, the World Bank and
IMF estimate that 36 of the 41 HIPC countries potentially could qualify for HIPC
assistance based on the debt-to-export threshold, an increase of seven from pre-
September assessments.18 In addition to lowering the eligibility thresholds, the decline
in global commodity prices during the past year is a main reason why some nations
which Bank and Fund staff previously thought would achieve sustainable levels of
debt without extraordinary HIPC relief now fall within the HIPC parameters. These
countries are positioned at various stages in the HIPC process. Only four — Uganda,
Bolivia, Guyana, and Mozambique — had reached their completion points under the
“old” HIPC program. Uganda, Bolivia, and Mozambique are expected to be among
the first to receive a “topping up” of debt relief under HIPC’s new, more generous
terms. (Guyana has fallen out of compliance with an IMF arrangement and will not
be eligible for early review.) Altogether, these three plus six others19 may come
before World Bank/IMF boards for full HIPC debt relief consideration by April 2000.
It is less certain when or whether remaining countries will eventually reach the
decision and completion points.
Critics, Proposals for Reform, and HIPC Expansion
Setting the Stage for HIPC Expansion
Although the majority of creditor and debtor governments, development
institutions, and non-governmental organizations (NGOs) supported the general
concept of the HIPC Initiative, many were disappointed with the results achieved
since 1996 and recommended substantial reforms. Numerous NGOs advocated
extensive modifications to, if not abandonment of the HIPC process. The strongest
critics sought immediate, unconditional forgiveness of poor country debt. Foremost
among the NGO activists has been Jubilee 2000, a campaign launched at the June
1997 G-7 Denver Summit, and spearheaded primarily by Catholic and Protestant
organizations from over 60 countries that have been involved in debt relief and
poverty issues for many years.
U.S. Policy. While acknowledging weaknesses with the current HIPC structure,
global public financial institutions and creditor governments examined since spring
1999 ways to strengthen, but not replace HIPC. President Clinton announced in mid-
March the outlines of a U.S. plan that would form the basis for a continuing American
campaign for the expansion of HIPC debt relief terms. Since its inception in 1996, the
18 The five that are not expected to need relief at HIPC terms are Angola, Equitorial Guinea,
Kenya, Vietnam, and Yemen. Four of the 36 that appear to qualify on debt sustainability
grounds may not participate. Sudan, Somalia, and Liberia are not close to meeting the
economic reform criteria. Ghana has said it may not want HIPC debt relief since it would lose
the ability to borrow from Japan, an important aid donor, if it participates.
19 Nicaragua, Burkina Faso, Tanzania, Honduras, Mali, and Senegal.

CRS-20
United States supported HIPC as a means to promote economic growth and poverty
alleviation, and to reward those countries with the best performance records with the
cancellation of debt that most likely would never be paid. At the same time, U.S.
officials emphasize that any debt relief program must be carefully designed so that it
does not result in negative incentives that will undermine the capacity of poor country
governments to borrow in the future. The United States also endorses HIPC for its
broad and comprehensive approach to debt reduction that involves bilateral and
multilateral creditors alike. Because the U.S. holds such a small amount of what is
owed by the most heavily indebted poor nations — less than 4% — unilateral
American action would have minimal impact on relieving the severe debt overhang.
World Bank/IMF and G-7 Proposals. Under pressure from member
governments and NGOs, World Bank and IMF officials said at their spring 1999
meetings that they would review HIPC and be prepared to propose substantive
reforms at the organizations’ annual meetings in September. Subsequently, Bank and
Fund staff prepared a policy modification paper to which the IMF Executive Board
gave a favorable review in mid-August.20 G-7 leaders, meeting in Cologne, Germany,
at their annual economic Summit, further issued a joint position statement endorsing
many of the recommendations put forward by the United States and those
incorporated into Bank and Fund staff papers. As expected, at the World Bank/IMF
annual meetings in late September 1999, the institutions endorsed broad expansion
of the HIPC Initiative, the details of which draw heavily from proposals issued earlier
by President Clinton, the British government, and congressional legislative initiatives
(see below). Many NGO concerns are also accommodated in the expanded outlines
of HIPC, although groups remain concerned about how the modifications will be
implemented and whether the promised financing will materialize. The major
enhancements, discussed in more detail below, to the expanded HIPC Initiative
announced in September 1999 include:
! Broader debt reduction — Debt to export and fiscal qualification
thresholds are lowered so that 36 countries, up from 29, are expected
to qualify. (These numbers include Sudan, Somalia, and Liberia
which are unlikely to qualify for other reasons.)
! Deeper debt reduction — With lower export and fiscal thresholds
now used to define “sustainable” debt, qualifying countries will have
more debt canceled.
! Faster debt reduction — Instead of the previous requirement for
back-to-back three year periods of good economic performance,
debtor nations can now gain full HIPC benefits using a “floating”
completion point in which they must reach agreed-upon economic
reform targets anytime following successful implementation a the
first three-year program. IFIs have also agreed to extend interim
20 See, Modifications to the Heavily Indebted Poor Countries (HIPC) Initiative, July 23,
1999, found at [http://www.worldbank.org/html/extdr/hipc/mod072399/paper.htm]. See also,
IMF Executive Board Reviews HIPC Initiative Modifications, August 13, 1999, found at
[http://www.worldbank.org/external/np/sec/pn1999/pn9976.htm].

CRS-21
assistance between the decision and completion points, and to “front-
load” debt service relief in some cases.
! Poverty reduction emphasis — The World Bank and IMF pledge to
place greater emphasis on the poverty reduction goal of debt relief,
reform ESAF arrangements, and to require that debtor nations
prepare and implement a Poverty Reduction Strategy Paper that will
ensure that debt relief savings will be utilized to increase spending on
health, education, and other basic social programs.
Congressional Initiatives. During the 106th Congress, several bills have been
considered that endorse a significant expansion of U.S. debt relief policy. Some are
consistent with current U.S., G-7, and World Bank/IMF plans to broaden HIPC relief
terms while others go well beyond these proposals. Although formal action on any
of these bills did not begin until early November 1999, the discussion prompted by
their introduction helped shape U.S. policy changes and provided momentum for
many of the HIPC expansion initiatives recently announced by the World Bank and
IMF.
In the final days of the 106th Congress, 1st session, the White House and
congressional leaders negotiated the text of authorizing legislation (H.R. 3425,
incorporated by reference into the Consolidated Appropriations Act, FY2000, P.L.
106-113) that provides the Administration with authority to implement enhanced debt
reduction terms. But the legislation excludes a number of provisions that debt relief
advocates had sought in other bills, especially directives to reduce or eliminate the
role of IMF structural adjustment programs as a qualifying criteria for debt relief. A
more expansive debt relief framework — H.R. 1095 — had been reported by the
House Banking Committee in early November 1999, and drew broad support from
NGOs, Jubilee 2000, and other activists in the debt debate. H.R. 1095, however,
faces stiff opposition from the Administration. Table 7, found at the end of this
report, compares major elements of H.R. 3425, the new authorizing bill enacted on
November 29, with H.R. 1095, terms of the original HIPC program, and the
“Expanded HIPC” recommendation endorsed by the G-7.
International Debt Relief Act. This legislation (title V of H.R. 3425, P.L.106-
113) represents the outcome of executive-legislative negotiations during the final days
of the 1st session over the terms of enhanced U.S. debt relief programs and
authorization for U.S. officials to support the IMF off-market sale of gold and use of
a reserve account to finance the Fund’s participation in HIPC.21 In general terms it
approves HIPC qualification requirements that are in line with current Administration
policy, including several measures to strengthen the linkage between debt relief and
poverty reduction. The bill further authorizes U.S. support for the IMF to sell enough
gold to generate 2.226 billion Special Drawing Rights in profits. The sales will take
place only between the Fund and member countries (mainly Mexico) in nonpublic
21 H.R. 3425 is entitled, Making Miscellaneous Appropriations for FY2000. It is enacted by
reference in H.R. 3194, the Consolidated Appropriations Act of FY2000, legislation that
represents the final “budget package” for FY1999. President Clinton signed H.R. 3194 on
November 29, 1999.

CRS-22
transactions so that the IMF retains possession of the gold at the conclusion of the
exchange. “Profits” from the sales will be invested, with the earnings available to
finance IMF debt relief for HIPC countries. H.R. 3425, however, limits to 9/14 the
amount of earnings on investments that may be used by the Fund. Congressional
leaders pledged that Congress will review the issue during the first half of 2000 and
consider authorizing the use of the full amount.
Debt Relief for Poverty Reduction Act of 1999. H.R. 1095 aims to reform the
HIPC Initiative much along the lines recommended by Jubilee 2000/U.S., Bread for
the World, Oxfam America, and many other NGOs. Introduced by Representative
Leach on March 11, 1999, H.R. 1095 addresses only debt reduction issues and not
the broader array of African aid and trade policy raised in some other legislative
proposals. On several points — lowering the eligibility thresholds, emphasizing
poverty reduction goals, and extending more rapid debt relief — it is consistent with
the expanded U.S. HIPC debt relief policies and those announced at the World
Bank/IMF annual meetings in September. But on other issues, it goes beyond
Administration plans and would result in broader and deeper debt reduction for more
developing countries. H.R. 1095, reported by the House Banking Committee on
November 18, would require reforms that would expand by 10 the number of
countries, including Nigeria, that are expected currently to receive HIPC terms. The
legislation would also add several additional eligibility criteria relating to slavery
practices, labor conditions, female genital mutilation, and MIA cooperation. It further
“urges” lower debt-to-export thresholds than currently agreed upon. H.R. 1095 does
not fix a cost to expanding debt relief but authorizes the appropriation of “such sums
as may be necessary.”
Debt Relief for Poor Countries Act of 1999. S. 1690, introduced by Senator
Mack and others on October 5, follows much of the same outlines of H.R. 1095 but
without several eligibility requirements added during committee markup. In addition
to emphasizing poverty reduction goals, the legislation further requires debtor nations
to establish a mechanism through which debt relief savings will be used for economic
reform programs that promote sustainable growth and provide widely shared benefits
throughout the population.
Human Rights, Opportunity, Partnership, and Empowerment for Africa Act
(HOPE for Africa Act). H.R. 772, introduced by Representative Jackson on
February 23, 1999, represents a broad, comprehensive approach for a new U.S. policy
towards sub-Saharan Africa, including a commitment to cancel all African debt,
increase U.S. development aid to the region, provide preferential access to U.S.
markets of African goods, and ensure that such products are produced consistent with
sound labor, human rights, and environmental standards. It is an alternative proposal
to President Clinton’s Africa initiative launched in 1998 and to legislation passed by
the House last year and that is under consideration again in the 106th Congress (H.R.
434/S. 1387).22
22 For a discussion of the Clinton African initiative and related legislation, see CRS Issue Brief
IB98015, African Trade and Investment: Proposals in the 106th Congress, by Theodros
Dagne and (name redacted).

CRS-23
Debt forgiveness provisions of the HOPE for Africa Act are based on the basic
principles that sub-Saharan Africa’s debt burden is a serious obstacle to economic,
political, and social development in the region, that any policy aimed at promoting
growth and sustainable development in Africa must include unconditional debt
cancellation, and that IMF, World Bank, and other structural adjustment programs
have imposed “enormous preventable suffering on African people.” H.R. 772
essentially rejects the HIPC Initiative, substituting a policy of immediate,
unconditional debt forgiveness of the entire $6.8 billion of African debt owed to the
United States government,23 as well as all debt owed to American private lenders, and
advocating the implementation of similar policies by other creditor governments and
IFIs. H.R. 772 is the most expansive of the congressional bills, promoting 100%
immediate debt forgiveness, without conditions, for all sub-Saharan African nations.
If fully implemented, the HOPE for Africa bill would result in the forgiveness of about
$226 billion for all 48 African nations, plus potentially up to about $1 billion of debt
owed to U.S. persons. To cover the costs of U.S. debt forgiveness, H.R. 772
authorizes for FY2000-2002 the appropriation of “such sums as may be necessary,”
but does not attach any specific amount to the new policy.
HOPE for Africa Act of 1999. Senator Feingold introduced S. 1636, a modified
version of the House HOPE for Africa Act. Like H.R. 772, it would apply to all 48
sub-Saharan African countries and result in 100% cancellation of all debt owed the
United States by these countries. It would not require, however, the forgiveness of
private debt held by U.S. persons, as in H.R. 772, but instead call for a report by
January 1, 2000, from the Treasury Department setting out a plan for the U.S.
government to acquire this private debt. No specific amount of money is authorized
for implementation of S. 1636.
Debt Relief and Development in Africa Act of 1999. H.R. 2232, like H.R.
1095 and S. 1690, is focused directly on debt reduction issues and promotes
improvements to the HIPC process, not its abolishment. While similar in scope to the
Leach and Mack bills, legislation offered by Representative Waters on June 15, 1999,
would extend deeper debt reduction to a smaller group of nations, add additional
eligibility requirements for debtor countries, and explicitly reject the need for nations
to comply with an IMF structural adjustment program. Portions of the bill that
required HIPC countries to implement plans to protect their natural resources were
incorporated into the marked-up text of H.R. 1095. Like the HOPE for Africa Act,
H.R. 2232 applies only to countries in sub-Saharan Africa, rather than the world-wide
focus of HIPC and H.R. 1095/S. 1690.
Debt Emancipation to Enable Democracies (DEED) Act of 1999. The DEED
Act (H.R. 3049), introduced by Representatives McKinney and Rohrabacher on
October 7, adds as an eligibility requirement for debt relief that countries promote
democracy through the holding of free and fair elections, maintaining civilian control
over the military, and other democratic principals. H.R. 3049 further adds Haiti to
the list of HIPC countries, bans any U.S. funds to the IMF until the institution cancels
all debts owed by HIPC nations and abolishes ESAF, and permits operations of the
23 The $6.8 billion represents the total as of the end of 1997. More recent estimates suggest
that the figure has grown to about $7.5 billion.

CRS-24
Overseas Private Investment Corporation (OPIC) only in those HIPC countries that
are using the savings from debt forgiveness for poverty reduction purposes.
Debt Forgiveness Act of 1999. H.R. 1305, introduced by Representative
Campbell on March 25, 1999, has a far more limited scope than the other bills. Under
the Campbell legislation, the President must first cancel 100% of concessional and
non-concessional debt owed to the United States by all 41 HIPC countries before the
U.S. can transfer funds to the IMF. Last year, in P.L. 105-277, Congress
appropriated $17.9 billion to fund U.S. participation in an IMF quota increase and for
the Fund’s New Arrangements to Borrow facility.
Critics Views of HIPC, Proposals for Change, and the Response
While debt relief proponents have found fault with many aspects of the HIPC
Initiatives, the most significant concerns over which there is wide agreement center
on three issues: the speed of debt relief, how much relief is provided, and eligibility
requirements for HIPC participation. The discussion below explains each of these
criticisms and identifies reform proposals adopted by the G-7 and the World
Bank/IMF, and those included in congressional legislation.
HIPC Debt Relief Comes Too Slowly. Most agreed that a qualifying period
that can take up to six years was too long. Critics asserted that such delays were
actually counter-productive to the success of economic reforms undertaken by HIPC
countries; that debt relief provided during, rather than after completion of a structural
adjustment program can accelerate and strengthen the reform efforts. Moreover, they
argued, that countries emerging from conflict or have been victimized by a natural
disaster, such as Hurricane Mitch, should be provided with special accommodation
so that their debt obligations do not complicate reconstruction efforts.
While most support the requirement for some qualifying period, the issue
becomes how long a track record of good economic performance is sufficient to
ensure that debt relief is not wasted and that it will have lasting benefit.24 The World
Bank and IMF have maintained in the past that a second three-year period after a
country reaches its decision point may be necessary to guarantee that the full range
of complex structural reforms have time to take hold. But the institutions also
pointed out that the six year requirement was applied flexibly for the seven countries
at or near the end of the HIPC process — that Uganda and Bolivia, for example, had
their second stage shortened to one year.
One implication of shortening the qualifying period is the possibility of additional
costs. By reducing the time, countries would receive debt relief earlier, before the full
24 Not all debt relief proponents, however, endorse the need for a qualifying period of
economic reforms, arguing instead for immediate cancellation. This position is generally
based on the premise that much of the past debt was acquired illegitimately for reasons
unrelated to the development needs of the poor: that it was accumulated with the
encouragement of international financial institutions at a time when they had a capital surplus;
that it was thrust upon U.S. and Soviet Cold War client states, or that it was obtained by
prior, corrupt regimes that either squandered or stole the money.

CRS-25
impact of reforms had a chance to strengthen their economic position. As a result,
the debt-to-export ratios on which the amount of debt relief is calculated, would likely
be higher at an earlier point and would require more assistance to lower the debt
stock to the sustainable target of around 200%. An analysis by the World Bank
estimates that shortening the second three-year qualifying stage by one year would
add $2 billion, while the elimination of the second stage would raise HIPC costs by
$6.6 billion.25 From the perspective of the debtor country, the advantage under an
accelerated qualification scenario would be the receipt of earlier and higher amounts
of debt relief.26
World Bank/IMF Modifications. At their annual meetings, the Bank and Fund
endorsed G-7 proposals for multilaterals to extend “interim relief” and to establish
“floating completion points” that could shorten the time it takes a country to receive
HIPC debt relief. Instead of a fixed three-year second stage, nations could reach the
completion point once they had successfully met agreed-upon economic policy
targets. This, according to Bank and Fund officials, would offer strong incentives for
governments to implement reform programs more quickly and to assume more direct
control over how rapidly they become fully eligible for HIPC relief terms.
Congressional Recommendations. Except for H.R. 3425, each of the broadly
focused debt reduction bills propose to shorten the interim period. By not stating a
timing preference, H.R. 3425 would allow the President to implement debt reduction
programs at an accelerated pace as recommended by the G-7.
! The Leach and Mack bills (H.R. 1095 and S. 1690) propose to
shorten the eligibility period to no more than three years, with special
accommodation for countries emerging from conflict of natural
disasters.
! The HOPE for Africa measures (H.R. 772 and S. 1636) include few
specific dates for initiating debt relief actions, but through a series of
required reports by the President to Congress, the legislation implies
that rapid movement should occur. Beginning on December 31,
1999, the President must report annually on unilateral debt relief for
African nations; within nine months of enactment, the Secretary of
State must report on how other creditor governments have
responded to U.S. appeals for them to forgive bilateral Africa debt;
and within a year of enactment, the Secretary of the Treasury must
notify Congress how World Bank and IMF members have reacted to
U.S. proposals for the Bank and Fund to fully and unconditionally
cancel Africa’s debt.
25 World Bank. HIPC Initiative: Perspectives on the Current Framework and Options for
Change — Supplement on Costing. Table 5. April 13, 1999. Modified May 12, 1999.
26 For example, the GAO estimated that if the second stage for Guyana was reduced to one
year instead of three, HIPC assistance would be 68% higher with an increase of $103 million
in the present value of debt canceled. General Accounting Office. Status of the Heavily
Indebted Poor Country Debt Relief Initiative. September 1998, p. 38.

CRS-26
! The Debt Relief for Development in Africa Act of 1999 (H.R. 2232)
would make HIPC terms available immediately once a debtor country
is determined to have a debt-to-export ratio above 100% and has
created a Human Development Fund and a Natural Resource
Development Plan.
Debt Sustainability Definitions and Targets Are Limited or Inappropriate.
Many HIPC critics believed that the debt-to-export and debt service-to-export
thresholds were set too high, excluding some heavily indebted countries from
qualifying for HIPC terms or from being included among the HIPC countries.
Bangladesh, Haiti, Comoros, among other poor countries, were not part of the HIPC
process, even though their debt-to-export ratios fell between 150-300%. Setting
targets too high, according to these critics, further restricted the amount of debt relief
provided, undermining the prospect that HIPC would provide a “permanent exit”
from an unsustainable debt burden. A downturn in global commodity prices or other
negative external factors, they argued, can shift a country from a sustainable to
unsustainable debt position. Debtor nations would be far less vulnerable to such
factors if HIPC provided deeper debt relief.
Some of these same critics also believed that HIPC places too much emphasis
on reducing debt stock and not enough on cutting the amounts of debt service.
Targets based on the relationship between debt and exports, they believed, are less
important than indicators focused on debt service and government revenues.
Reducing debt service obligations frees up resources immediately that can be used to
finance social and other poverty reduction programs. Many observers were dismayed
by World Bank and IMF admissions that debt service payments for the early qualifiers
of HIPC relief would not be much different than before; indeed, debt service for Mali
and Burkina Faso was expected to rise.27 Critics believed that indicators drawing on
the relationship between debt service and government revenues were more
appropriate for poor countries and would help achieve the duel goals of debt
reduction and increased spending on education, health, and other social programs.
The World Bank and IMF did not necessarily disagree with these concerns, and
acknowledged that HIPC targets were “judgmental rules of thumb” that should not
represent “discrete cutoffs.” They cautioned, however, that changes made to the
targets or the introduction of different indicators also raised serious implications.
Establishing an appropriate debt service target that would achieve debt sustainability,
they asserted, would be more difficult and lack a strong analytic basis. Bank and
Fund officials further said that a country’s capacity to service debt involves more than
just the collection of revenues, and needs to be examined in a full budgetary context.
They have also expressed concern that a substantial expansion and deepening of HIPC
relief would not necessarily lead to increased amounts of external aid — that because
of fiscal constraints of participating creditor governments and institutions, more debt
27 World Bank. HIPC Initiative: Perspectives on the Current Framework and Options for
Change — Annex 1. Implementation of the Initiative and Resource Flows. April 2, 1999,
p. 45.

CRS-27
assistance might come from funds that would otherwise go for development
assistance, which is already in decline.28
G-7 Proposal. Following recommendations issued by the White House in
March, G-7 leaders endorsed raising the level of canceled Paris Club bilateral non-
concessional debt from 80% to 90%, and even higher for the very poorest. Also at
the June Summit, participants proposed that the World Bank/IMF debt sustainability
targets be lowered from a debt-to-export ratio of 200% to 150%, and that the
alternative debt-to-revenue ratios decline from 280% to 250%. Not only would this
modification cancel a larger portion of debt held by eligible countries, it would also
increase the number of countries that would likely qualify for expanded-HIPC terms.
Analysts believed that the pre-September World Bank estimate of 29 potentially
qualifying nations would grow to 36 under ratio reductions recommended by the G-7.
The G-7 further endorsed a plan, also backed earlier by the United States, for
bilateral lenders to forgive all concessional foreign aid loans and to extend future
concessional financing mostly in the form of grant aid. Since the United States has
extended nearly all foreign aid as grants for over a decade, this latter proposal would
have no impact on current U.S. policy. This would also be the case for most other
donors. But for a country such as Japan, which in 1997 offered about 17% of its aid
as loans, this policy would require adjustments.
World Bank/IMF Modifications. Bank/Fund proposals follow closely those
endorsed by the G-7. They recommend that the NPV debt-to-exports ratio decline
form the current 200-250% range to a single target of 150%; that the NPV debt-to-
revenue ratio decline from 280% to 250%; and for those countries with very open
economies that qualify based on the fiscal window, that the current 40% of exports-
to-GDP fall to 30% and the 20% of revenues-to-GDP decline to 15%. Addressing
concerns over debt service burdens, the institutions recommend “front-loading” more
debt relief after countries have reached their completion point. They further endorse
the lowering a debt service-to-exports ratio to a range of 15-20%.
Congressional Recommendations. H.R. 3425, as enacted, and three of the
pending debt reduction bills address the debt sustainability targets. Since the Jackson
and Feingold bills (H.R. 772 and S. 1636) propose full debt cancellation for all sub-
Saharan African nations, debt targets would not be an issue.
! The International Debt Relief bill (title V of H.R. 3425, P.L. 106-
113), the Debt Relief for Poverty Reduction Act of 1999 (H.R.
1095) and the Debt Relief for Poor Countries Act of 1999 (S. 1690)
all propose lowering the debt-to-export eligibility threshold to 150%.
They further recommend deeper debt reduction by setting a
sustainability level of 150% debt-to-exports ratio. H.R. 1095 and S.
1690 go beyond H.R. 3425 and Administration policy by requiring
that annual debt service payments are not larger than 10% of annual
government revenues generated from internal sources. This
requirement especially could expand the amount of debt relief
28 World Bank. Perspectives on the Current Framework and Options for Change.

CRS-28
provided and hasten the benefits for the debtor country. Although
there are no estimates of how much debt would have to be canceled
to meet the 10% requirement, it appears that debt service payments
would fall dramatically for some. Mozambique, for example, with
government revenues of about $448 million, paid $104 million
servicing its debt in 1997 and is projected to pay $71 million on
average through 2005 now that it has reached its completion point.29
Under the 10% ceiling, Mozambique would have paid $45 million in
1997. While the relief provided may be dramatic, the costs to
creditor governments and institutions might be as well.
! The Waters bill (H.R. 2232) would extend deeper and broader debt
relief than other pending initiatives, except for the HOPE for Africa
legislation. The debt-to-export ratio eligibility threshold would fall
to 100%, making about 38 African nations eligible.30 The amount of
debt relief received would deepen due to a requirement that a
country’s debt burden be reduced so that the NPV of debt-to-exports
does not exceed 100% and that annual debt service payments are not
larger than 5% of annual government revenues generated from
internal sources. As noted above, the latter target especially would
deepen the debt relief and accelerate its impact for financing poverty
programs. The costs to creditor governments and institutions also
would grow, perhaps significantly.
Performance Requirements Are Flawed. For years, NGOs and many
developing countries especially have argued that IMF-sponsored structural adjustment
programs have in most cases not achieved their goals of expanding economic growth,
while inflicting a substantial negative impact on poverty reduction efforts in poor
countries. As such, the HIPC requirement to maintain such a reform arrangement
through the IMF’s Enhance Structural Adjustment Facility (ESAF), these critics
asserted, was not appropriate for HIPC eligibility. They believed that ESAF programs
should be replaced with alternative performance links with a poverty focus emphasis.
Debtor countries would be required to establish social development plans that would
result in increased spending on education, health care, environmental protection, and
other basic services.31
29 World Bank. Global Development Finance, 1999, volume II. Also, HIPC Initiative:
Perspectives on the Current Framework and Options for Change, Annex 1, p. 46; and
Modifications to the HIPC Initiative, July 23, 1999, p. 23.
30 Possible African countries that would not qualify because they are not “IDA-only”
borrowers or have a debt-to-export ratio below 100% are Botswana, Eritrea, Gabon, Lesotho,
Mauritius, Namibia, Nigeria, Seychelles, South Africa, and Zimbabwe.
31 Uganda, the first country to receive full HIPC benefits, now deposits $40 million it saves
annually from debt write-offs into a special poverty action fund. Ugandan officials argue, that
while creditor governments and institutions have set international poverty reduction targets,
they have not provided the means to finance them. Debt reduction targets based on debt
service levels rather than export earnings, they say, would provide needed resources. (The
Guardian, May 26, 1999, p. 11.)

CRS-29
The IMF rejects claims that ESAF structural reform programs have failed,
arguing that external evaluations have found that such activities have had positive
effects on growth and income distribution in poor countries.32 Bank and Fund staff
further stress that the HIPC Initiative has always pursued dual objectives of achieving
economic growth and alleviating poverty. Requiring countries to develop
comprehensive plans for poverty reduction and social development, they caution, may
be beyond their current capacity because of financial considerations. Sufficient time
would be required to design such initiatives, they say, a factor that might be counter-
productive to efforts to accelerate the pace of debt relief. According to other
observers, given the evidence that HIPC will not provide much in the way of early
debt service relief for some countries, a requirement that debtor governments increase
spending on basic social programs, derived from debt reduction “savings,” may be
asking countries to spend funds that will not have been generated.
G-7 Proposal. Although G-7 leaders continue to support IMF and World Bank
policy reform programs for HIPC countries, they issued a strong recommendation for
the Bank and Fund to build an enhanced poverty reduction framework, especially
within the IMF’s ESAF programs. G-7 finance ministers called on the Bank and Fund
to help HIPC countries design and implement poverty reduction plans through a
transparent and participatory process that will ensure that debt relief savings would
be invested in health, education, and other social programs.
World Bank/IMF Modifications. The Bank and Fund now agree that an
enhanced HIPC initiative should include a stronger framework for poverty reduction,
although the details on how this might affect ESAF policy reform programs or
requirements for debtor countries to establish social development plans remain to be
worked out. IMF Board Directors have noted that proposals for interim assistance
and front-loaded relief on the part of the multilaterals could be a means to help HIPC
nations to find additional resources for social and other poverty-related activities.
Moreover, the IMF will require in the future that countries receiving debt relief must
develop and implement a Poverty Reduction Strategy Paper that has the full
participation of civil society. Fund officials have further implied that successful
implementation of these strategy papers may become a factor in IMF decisions
whether to proceed with ESAF loan transfers. (The IMF has subsequently re-named
ESAF as the Poverty Reduction and Growth Facility (PRGF).)
Congressional Recommendations. Of the bills introduced and considered in the
106th Congress, H.R. 3425, as enacted, is the only initiative that expressly requires a
country to adhere to a “social and economic reform program.” None of the other
broadly focused debt reduction bills would continue ESAF reform program
compliance as a requirement for HIPC eligibility. On the other hand, each, including
H.R. 3425, either requires or recommends additional standards connected with
strengthened poverty reduction spending on the part of debtor governments. The
issue of ESAF policy reforms linked with debt reduction eligibility was extensively
debated during the House Banking Committee markup of H.R. 1095 on November
3.
32 See, for example, IMF. External Evaluation of the ESAF. 1998.

CRS-30
! H.R. 3425, as enacted, requires that a qualified debtor nation
maintain a social and economic reform program that, among other
things, is designed through transparent and participatory processes,
integrates poverty-oriented development strategies and ensures that
the debt savings are used to reduce poverty and environmental
degradation, and expands the private sector. The legislation further
requires the U.S. to work through the IMF to modify the Fund’s
ESAF programs, incorporating provisions with a poverty reduction
focus.
! H.R. 1095 would directly strengthen the poverty reduction
requirements of HIPC. The bill, as reported, requires that any
economic and social conditions placed on country eligibility include
measures for poverty reduction and environmental protection. The
bill further adds an additional requirement that in order to receive
relief, a debtor nation must establish a “Human Development Fund,”
into which funds saved from debt relief measures be deposited and
spent on basic social services. Through this, proponents intend to
ensure that debtor governments invest more of the country’s
resources in education, health, clean water, and other poverty
focused programs. During the markup session, the Committee
adopted an amendment by Representative Frank aimed at assuring
that a debtor nation’s eligibility for U.S. debt relief would be
determined not by the terms of an IMF structural adjustment
program, but by conditions established by the United States,
including those required by H.R. 1095. Another amendment by
Representative Sanders “urges” the President to seek changes in the
HIPC process that would eliminate the need for an IMF reform
program as a condition of eligibility. Other amendments intended to
bar the requirement for IMF structural adjustment programs or to
cancel debt unconditionally were either withdrawn or defeated.
! S. 1690 includes similar poverty spending requirements as in H.R.
1095, plus an additional condition that governments use the debt
relief savings for economic reform programs that promote sustainable
development with benefits shared widely throughout the population.
! The HOPE for Africa Act (H.R. 772) authorizes unconditional debt
relief for African nations, thereby eliminating any pre-conditions
regarding ESAF or other policy reform requirements. The Jackson
bill, however, includes a requirement for the Secretary of State to
encourage African governments to allocate 20% of their national
budgets to support the U.N.’s 20/20 Initiative.33
33 The U.N. 20/20 Initiative calls on foreign aid donors to focus 20% of their assistance on
poverty reduction programs and aid recipient governments to commit 20% of their revenues
to basic social programs.

CRS-31
! The companion HOPE for Africa Act (S. 1636) includes standard
legislative eligibility requirements that countries not violate human
rights, promote terrorism, engage in drug production or trafficking,
or spend excessive amounts on their militaries. Like H.R. 772, the
bill endorses that African governments support the 20/20 Initiative.
! The Debt Relief and Development in Africa Act of 1999 (H.R. 2232)
explicitly prohibits the use of structural adjustment programs as a
condition for HIPC eligibility. The Waters bill, like H.R. 1095, also
requires debtor nations to establish a Human Development Fund
which will be used to expand government financial allocations for
basic social programs. In addition, H.R. 2232 further mandates that
countries create a Natural Resource Development Plan that will
clearly identify, among other things, which natural resources are
being developed, to what extent companies involved in their
development will profit, the quantity of revenues that will be
generated through such development and how the government plans
to use the money, and government conservation and environmental
protection proposals. The bill authorizes the U.S. Agency for
International Development and directs international financial
institutions to assist debtor countries in creating the Plan and
negotiating the terms of contracts with foreign investors involved in
the development of natural resources. Further, H.R. 2232 bans U.S.
Export-Import Bank support for any private American business
involved in natural resource development in debtor nations unless
there is full public disclosure of their contracts with the government.
! The DEED Act of 1999 (H.R. 3049) conditions any future transfers
of U.S. resources to the IMF on the abolishment of ESAF. Instead
of a poverty-focused requirement included in most other debt relief
bills, the McKinney-Rohrabacher legislation stipulates that only
governments that were chosen through free and fair elections and
which promote civilian control of the military, the rule of law, and
strengthened political, legislative, and civil institutions of democracy,
are eligible for debt relief.
Cost Implications of Enhanced HIPC Debt Relief Measures
While approval for altering HIPC policy, terms, and conditions has occurred,
there is less certainty whether sufficient funds will be committed to implementing the
considerably higher costs of a reformed HIPC initiative. The World Bank/IMF
estimate that changes announced at their annual meetings in September will increase
HIPC costs from about $12.5 billion to $27.4 billion.
Cost Burden-sharing. Financing and establishing some burden-sharing
arrangement among participating creditor governments and institutions could be a
difficult hurdle in future HIPC reform negotiations. World Bank/IMF estimates show
that expenses for bilateral creditors participating in HIPC through Paris Club debt
relief would increase from $5.2 billion under the previous framework to $11.5 billion
for an enhanced HIPC program. Multilateral creditor costs would grow from $6.2

CRS-32
billion to $13.3 billion, with the World Bank share climbing from $2.4 billion to $5.1
billion, and that of the IMF from $1.2 billion to $2.1 billion.
Multilateral Financing and IMF Gold Revaluation. For the costs of
multilateral debt write-downs under the original HIPC structure, the World Bank and
IMF agreed to draw from their own resources while other regional MDBs would
require some assistance from bilateral donors and their contributions to the HIPC
Trust Fund. Under an expansion of HIPC, World Bank officials seem more cautious
about the ability of the Bank to cover the additional costs and suggest they may have
to “borrow” International Development Association (IDA) resources to implement
debt relief. This would reduce IDA lending to these same poor countries, at least in
the short term, raise concern among international development proponents who
oppose extending debt relief at the expense of development aid.
For the IMF, the situation is more complicated. The Fund had planned to
finance part of its participation under the earlier framework from the sale of gold.
After gaining the support of G-7 governments, including the United States, for the
gold sale, the original plan was abandoned in the face of significant opposition from
gold mining business interests and gold-producing countries in Africa who believe the
sale would force the price of gold down. The IMF modified its gold proposal so that
through a complicated process, some of the Fund’s gold assets would be revalued
from the “book” price of about $48 an ounce to the current world market price of
more than $260 per ounce. In short, the “profit” from the revaluation of gold could
be used for writing off poor country debt owed the IMF.34 As noted above, Congress
approved legislation (H.R. 3425) that allow the U.S. to support the proposed
mechanism, although with certain limitations.
U.S. Costs. For the United States, full implementation of the enhanced HIPC
modifications requires additional appropriations of $970 million provided over several
years. President Clinton had earlier asked Congress to provide $120 million for debt
relief (including $50 million for the HIPC Trust Fund) in FY2000. After G-7
agreement to expand the terms of HIPC, the White House, on September 21, 1999,
amended its pending request, adding $850 million for a total of $970 million. Of this,
$370 million was sought for FY2000, with the balance provided in increments of $200
million in each the following three years. Of the total, $650 million would pay for
U.S. contributions to the HIPC Trust Fund.
These estimates, however, are highly tentative and could fluctuate widely. For
example, if conditions in Sudan, Somalia, and Liberia would change so that it became
possible for their participation within HIPC, U.S. expenses, especially for bilateral
debt reduction, would grow considerably. Since these three countries account for
roughly $2 billion of the $6 billion owed the U.S. by the 41 HIPC nations, the costs
of bilateral debt reduction for the United States might grow by as much as one-third
Moreover, at the World Bank/IMF meetings, President Clinton announced that the
United States was prepared to cancel 100% of all bilateral debt, going beyond the
90% level endorsed by the G-7 for non-concessional loans. This will push U.S. costs
up, although the White House says the initiative can be accommodated within the
34 See footnote 13, above, for details on how the process would work.

CRS-33
recent budget amendment. A main reason why U.S. costs for an expanded HIPC
would fall heavily on financing the multilateral dimensions rather than the bilateral
portion of debt owed directly to the United States is because the U.S. has previously
written off a large portion of concessional debt and has not extended foreign aid on
a loan basis for over 15 years.

Thus far, Congress has supported only a very small portion of the President’s
funding request for debt relief. As cleared for the White House on October 6, H.R.
2606, the FY2000 Foreign Operations Appropriations bill, provided only $33 million
for debt relief programs, none of which could be transferred to the HIPC Trust Fund.
President Clinton vetoed H.R. 2606 on October 18, largely because of spending
reductions, including those for debt relief measures. More recently, on November 18
and 19, the House and Senate, respectively, approved another Foreign Operations
appropriations (H.R. 3422) that increases debt reduction spending to $123 million for
FY2000 but still bars the use of funds for multilateral debt relief. President Clinton
signed H.R. 3422 into law (as part of the Consolidated Appropriations Act, FY2000,
P.L. 106-113) on November 29, but said he would seek the remaining HIPC
appropriations in subsequent budget requests.

CRS-34
Table 7. Comparison of Debt Reduction Initiatives—Existing and Proposed
Expanded HIPC
International Debt Relief
Debt Relief for Poverty &
HIPC Terms, 1996 to mid-1999
G-7 Proposal-June 1999
(title V of H.R. 3425, PL 106-113)
Development (HR 1095)
For good economic performing
For good economic performing
To authorize actions for bilateral debt
To improve existing debt relief
countries, debt level reduced to a
countries, debt reduced so countries
relief and to improve multilateral debt
mechanisms & ensure savings
Goal
“sustainable” level.
can meet basic needs and spur
relief.
from debt can-cellation will
economic growth.
finance poverty reduction
- good economic record
- good economic record
-IDA-only statusa
-IDA-only statusa or Nigeria
Country
-World Bank/IMF program
-IDA-only statusa
-NPV debt-to-export ratio over 150%
-NPV debt-to-export ratio over
Eligibility
-IDA-only statusa
-NPV debt-to-export ratio over 150%
-NPV debt-to-fiscal revenue ratio over
150%
-NPV debt-to-export ratio over 200%
-NPV debt-to-fiscal revenue ratio
250%
-NPV debt-to-fiscal revenue
-NPV debt-to-fiscal revenue ratio
over 250%
-maintain a social and economic
ratio over 250%
over 280%
reform program
-“urges” no ESAF program
requirement.
Legislative requirements
regarding human rights,
For U.S., legislative requirements
terrorism, drug cooperation,
Other
---
regarding human rights, terrorism,
Legislative requirements regarding
excessive military spending,
Eligibility
drug cooperation, excessive military
human rights, terrorism, drug
slavery practices, and SE Asian
Criteria
spending, and expropriation of U.S.
cooperation, and excessive military
countries failure to cooperate on
owned property.
spending.
POW/MIA matters.
President also to consider child
labor conditions & workers
rights, and a country’s female
genital mutilation record.
Deposit debt savings into a
Poverty
Modify World Bank & IMF programs
Modify World Bank and IMF programs
Human Development Fund to
Focus
Nothing explicit.
to emphasize poverty reduction;
to be consistent with debtor country
finance poverty reduction
Requirement
channel debt relief savings into
Poverty Reduction Strategy Papers.
programs; broaden access to
education, health and other social
basic social services, education,
programs.
health, clean water,
environmental protection.
Number
29
36
36
46
Potentially
(25 in Africa)
(30 in Africa)
(30 in Africa)
(35 in Africa)
Eligible

CRS-35
Expanded HIPC
International Debt Relief
Debt Relief for Poverty &
HIPC Terms, 1996 to mid-1999
G-7 Proposal-June 1999
(title V of H.R. 3425, PL 106-113)
Development (HR 1095)
Multilateral
Reduction in debt owed so that:
Reduction in debt owed so that:
“Urges” the reduction in debt
Debt Relief:
owed so that:
NPV debt-to-exports ratio is 200-
NPV debt-to-exports is 150%.
NPV debt-to-exports is 100%.
Targets and
250%
None stated
Ratios
Annual debt service consumes
For very open economies,b NPV debt-
For very open economies,b NPV
no more than 10% of
to-fiscal revenue ratio is no more
debt-to-fiscal revenue ratio of 250%
government revenues raised
than 280%
domestically.
Bilateral
“Urges”
Concessional
Not applicable.
100%
None stated
100%
Debt Relief
Bilateral Non
Up to 90%; higher in exceptional
“Urges”
Concessional
Up to 80%
cases.
100%
100%
Debt Relief
U.S. policy 100%
Bilateral: Begin after 3 years of an
Retain two stage, 6-year process, but
Bilateral: Immediate, after
IMF reform program.
with the possibility of a significantly
Human Development Fund
shorter second stage; a “floating
U.S. should “urge” the World Bank
created.
Timing
Multilateral: Begin after up to 6
completion point.”
and IMF to complete by 12/31/00 a
years of an IMF reform program.
debt sustainability analysis for as many
Multilateral: After Human
Multilateral: Early cash flow relief
HIPC countries as possible.
Development Fund and Natural
by international institutions.
Resources Development Plan
created.
Bilateral creditors through Paris Club
Bilateral creditors through Paris Club
Bilateral: Unspecified authorization of
Bilateral: Unspecified
arrangements.
arrangements.
appropriations through 2004.
authorization of appropriations
through 2004.
Financing
World Bank & IMF with own
Authorize the IMF to sell gold and
Multilateral: none stated.
resources.
utilize a reserve account to finance its
Multilateral: Unspecified
participation.
Authorizes IMF “off-market” gold sale
authorization of appropriations
Other multilaterals with own
that will generate 2.226 billion Special
to the HIPC Trust Fund through
resources and contributions from
Bilateral donors may have to increase
Drawing Rights. Only 9/14 of the
2004.
creditor governments.
Trust Fund contributions.
earnings from investments of the gold
sale profits can be used.
Authorizes IMF “off-market”
gold sale up to 14 million
ounces.
HIPC
eligibility
World Bank/IMF
World Bank/IMF
World Bank/IMF
For bilateral debt relief, terms
responsibility
set by U.S. government.

CRS-36
Expanded HIPC
International Debt Relief
Debt Relief for Poverty &
HIPC Terms, 1996 to mid-1999
G-7 Proposal-June 1999
(title V of H.R. 3425, PL 106-113)
Development (HR 1095)
New Aid to
No position.
Preferably grant aid.
None stated
“Sense of Congress” for grant
HIPCs
aid only.
Sources: World Bank, U.S. Department of the Treasury, G-7 Finance Ministers Report to the G-7 Economic Summit (6/18/99), Department of Treasury testimony before House
Banking Committee (6/14/99), Bread for the World, and Oxfam America.
a Countries eligible to borrow only from the World Bank’s concessionary lending facility, the International Development Association. Generally, countries with an annual per capita
GNP of $925 or less are designated as “IDA-only.”
b Very open economies under the original HIPC program referred to those countries where the export-to-GDP ratio exceeds 40% and fiscal revenue-to-GDP exceeds 20%. Under
the G-7 recommendation and H.R. 1095, “very open economies” are those with an export-to-GDP ratio above 30% and fiscal revenue-to-GDP above 15%.

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