New World Bank Reports Confirm that the HIPC Initiative is Failing
By Romilly Greenhill, Jubilee Research 29th April 2002

[Excerpts only, full report at:
http://www.jubilee2000uk.org/analysis/articles/hipc290402.htm">

1. Introduction

In two new reports issued by the World Bank in time for the recent
IMF and World Bank Spring Meetings, the World Bank has admitted
that its own Heavily Indebted Poor Countries (HIPC) Initiative is
failing.

The two reports from the World Bank show that:

* Of the 5 countries already at Completion Point, at least 2 of
these do not have sustainable levels of debt according to the HIPC
criteria.

* Of the 21 countries which are currently between Decision Point
and Completion Point under the Initiative, at least 8-10 countries
will not have sustainable levels of debt at Completion Point,
according to the same criteria.

* Of the same group of countries, 9 have had their interim relief
from the IMF suspended due to failure to stay `on track' with IMF
supported Poverty Reduction and Growth Facility (PRGF) programmes.
These countries are supposed to receive interim relief on their
debt service between Decision Point and Completion Point.

* There have even been delays in providing interim debt service
relief for some countries which are entitled to this relief and are
`on track' with IMF programmes.

In this paper, we examine the two World Bank reports in detail, and
provide an overall assessment of how the HIPC initiative is
measuring up to the Bank's own criteria. We find that the World
Bank's own assessment shows that 31 out of the 42 countries within
the HIPC initiative are being failed by the process - even
according to the World Bank criteria.

2. Debt sustainability threatened.

Under the Heavily Indebted Poor Countries (HIPC) initiative, debt
sustainability is measured for most countries by comparing total
debt in net present value terms to a country's total exports. When
the total stock of debt is more than one and half times the value
of exports, the country is deemed to have an `unsustainable' level
of debt. Under the HIPC initiative, debt relief is provided by both
multilateral and bilateral creditors to bring down the total stock
of debt to within `sustainable' levels.

Jubilee Research and other NGOs have repeatedly charged that the
export projections used by the World Bank and IMF to calculate the
amount of debt relief that will be needed have been overly
optimistic, and that such optimism has been used by the creditors
to limit their own contribution to the initiative. For example, for
the first 24 HIPCs to reach Decision Point, the average growth in
exports for 2001 was projected to be 11.6%. This is an extremely
high figure, and bears little resemblance to the historical trend
of the HIPC countries. In fact, since 1965 annual export growth for
low income countries has been less than one third of this level.

It comes as no surprise, therefore, to learn that the actual export
growth for these 24 countries during 2001 was less than half the
World Bank's projected level, at 5.1%. ,,,

As a result of this shortfall, the average ratio of debt to exports
in 2001 for the 24 countries considered is now estimated to have
been a staggering 280%, almost twice the levels deemed
`sustainable' by the World Bank and IMF. Even the four countries
which had already passed Completion Point are estimated to have an
NPV of debt to export ratio of 156%. In total, 8 to 10 of the 20
countries which were between Decision Point and Completion Point at
the time of writing can no longer expected to have a NPV of debt to
exports at Completion Point of less than 150% (Benin, Burkina Faso,
Chad, Ethiopia, The Gambia, Guinea-Bissau, Malawi, Rwanda, Senegal,
and Zambia.)

In their report, the World Bank almost admits that their export
projections were overly optimistic, noting that `long term economic
forecasts.. depend critically on the underlying assumptions
especially on the future course of government policies as well as
external market conditions.' But they excuse their dramatic failure
to provide accurate projections on the grounds that the assumptions
were `based on policy scenarios and thus predicated upon the
successful implementation of a comprehensive set of economic and
structural reforms.' In other words, if the projections fail, the
country is itself to blame for not undertaking sufficiently
thorough `structural reforms.' ... this view simply does not meet
the reality.

Firstly, as the World Bank acknowledges, much of the shortfall in
exports has been caused by dramatic falls in commodity prices over
2000-01, particularly for coffee and cotton (which fell by 60% and
10% respectively.) For this fact alone, the HIPCs can hardly be
held responsible, except to the extent that under their IMF
tutelage they have all simultaneously been attempting to increase
exports, putting downwards pressure on the price. Worse,
protectionism in the North has severely worsened the volatility of
commodity prices. When prices are protected in the North under
agricultural agreements such as the Common Agricultural Policy and
similar US agreements, all the change in price in response to
natural fluctuations in commodity prices must be borne by the poor
countries - countries that are already suffering markets which have
been flooded by cheap exports, as a result of excess production in
the North caused by agricultural subsidies.

While the World Bank does concede as much, their response is that
the HIPCs should do more to diversify their production and export
base, and note that `the experience so far with export
diversification in low-income countries that are primary commodity
producers has been rather disappointing.' They list a host of
reasons for this, including `governance concerns' (i.e.
corruption), `limited protection of property rights' (i.e. not
paying enough attention to the needs of foreign investors and
creditors), `structural impediments to private sector development'
(i.e. protection for the poor, small farmers and workers), and
`limited availability of entrepreneurial capital and technical
skills' (i.e. blame the poor for being ignorant.)

Unsurprisingly, what the World Bank does not concede is that the
poor response to diversification programmes is the result of their
own policies of trade liberalisation. The basic logic of trade
liberalisation is that countries become more specialised in areas
in which they have a so-called `comparative advantage', and
increase their reliance on imports for goods in which they have a
`comparative disadvantage.' But the fact is that most of the HIPCs
have a `comparative advantage' in pure, unprocessed primary
products. As they liberalise, and move further towards the global
`free trade' position (much further, indeed, than their protected
competitors in the North), they become more dependent on primary
commodities, not less. ...

3. Delaying Interim Relief

During the recent World Bank and IMF Spring Meetings, debt
campaigners were shocked to learn that as many of 9 of the 20
countries between Decision Point and Completion Point are having
their interim relief from the IMF suspended as a result of
so-called `policy slippages' on their IMF programmes. Contrary to
the Bank's assertion that `annual debt relief received during the
interim period between decision and completion points is a
substantial share of the annual debt relief after completion
point.[therefore] countries do not have to rush [to completion
point] for the sake of increasing flows of debt relief', the
reality appears to be somewhat different. In fact, 9 of the 20
countries between Decision Point and Completion Point at the time
the report was published have seen `slippages' on their IMF
programmes. As the World Bank notes, when such slippage occurs,
suspension of interim relief from the IMF is `basically automatic.'
Most of these so-called `slippages' are for delays in meeting the
IMF targets on privatisation and liberalisation within HIPC
economies, and many are for very minor diversions from IMF
programmes.

Even more worrying, the World Bank has also admitted that some
relief is being delayed because of `administrative bottlenecks' and
difficulties in reconciling data between debtor and creditor
countries. In the case of Zambia, Decision Point was reached as far
back as December 2000 but interim relief has not yet been approved.
The fact the countries that have jumped through all the needed
hoops for getting to Decision Point are being delayed interim
relief because of creditors failure to get organised is nothing
short of scandalous.

4. HIPC Reaches Judgement Day - and the World Bank finds it to be
failing

NGOs such as Jubilee Research have long condemned the HIPC
initiative for failing to meet its stated objectives, for being
designed in the interests of creditors, and for imposing structural
adjustment type conditionalities on poor countries.

One of the criticisms often levelled at the HIPC initiative is that
it uses criteria for assessing debt sustainability which are purely
based on simple macroeconomic aggregates, such as exports, while
disregarding the human development needs of the HIPC countries, as
set out in the Millennium Development Goals. That being said,
however, one would expected that that World Bank's own initiative
would meet its own, narrow criteria for debt sustainability.

However, for the first time, the World Bank is now admitting that
its own initiative is failing. Table 1 [in full report on web]
summarises what the Bank says about each HIPC and their progress
towards reaching debt sustainability. As it shows, 31 out of the 42
HIPC countries are being failed by the initiative even according to
the World Bank criteria.

With a success rate of 25%, one might expect that the World Bank
would acknowledge the depth of failure of the HIPC initiative and,
like Jubilee Research and other NGOs, call for a new process for
debt cancellation, or `Jubilee Framework.' Instead, the World Bank
merely writes that: it would be `unrealistic to expect.that
countries will always stay below the HIPC debt sustainability
thresholds.' The Development Committee of the World Bank has even
gone so far as to say that the HIPC initiative is making `sustained
progress' in their Communique following their 21st April meeting in
Washington. Such self-delusion is almost unbelievable.

It is time to admit that creditors will have to provide more
relief, and fast, to overcome the crushing debt burdens which still
engulf the poorest countries on earth. The World Bank should
immediately review all the HIPC countries and provide immediate
further relief where required. While the Bank and IMF have agreed
that more relief may need to be provided at Completion Point in
some cases, and indeed have already done so in the case of Burkina
Faso, this is not enough. Their statement that `there should be no
presumption on country eligibility for topping up or the amount of
additional HIPC relief at the completion point' is a clear
indication that they intend to wriggle out of providing extra
relief, even when this is justified by external conditions.
Moreover, there is no provision for any further relief beyond
Completion Point.

We call on all creditors to accept their responsibilities to the
poorest countries on earth and to cancel the un-payable debts of
these countries under an independent process of arbitration, or
`Jubilee Framework.' It is time for an end to the endless rounds of
broken promises and weasel words that constitute the HIPC
initiative. When even the World Bank admits that HIPC is failing,
it is time to change. The Jubilee Framework can wait no longer.

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