Heavily Indebted Poor Countries Initiative

Launched in 1996 by the International Monetary Fund (IMF) and the World Bank, the Heavily Indebted Poor Countries Initiative (HIPC) is an “approach to debt reduction” applied to debt burdened Third World countries. HIPC Initiative packages, approved to date for 33 countries (August 2008), use a combination of IMF and World Bank supported adjustment and reform programs .

To be considered eligible for the HIPC Initiative assistance countries must meet four criteria. First, countries must “be IDA-only and PRGF-eligible”. In other words, International Development Association-only (IDA-only) loans exclude those countries that are receiving blend loans from both the International Bank of Reconstruction and Development (IBRD) and the IDA. Also, grant eligibility is based on Poverty Reduction and Growth Facility (PRGF)-eligibility. As PRGF-eligibility is based on the IMF’s assessment of a country’s per capita income, then a HIPC eligible country must have previously undergone an IMF assessment.

Second, in order for countries to receive HIPC Initiative assistance a country must be facing “an unsustainable debt burden, beyond traditionally available debt-relief mechanisms”. To put this in perspective and as a point of interest, as of August 2008 there are 78 countries receiving PRGF assistance. We can infer, then, that besides the 33 countries currently receiving HIPC Initiative assistance, there is a significant number of eligible candidates. In fact, as recently as October 2008 the IMF claims that there are 41 potential candidates for HIPC Initiative Assistance.

The third eligibility criterion is that countries must “establish a track record of reform and sound policies through IMF- and IDA-supported programs”. In other words, countries must agree to and implement the terms of IMF and IDA conditionalities. Moreover, countries must implement the necessary institutional reforms so as to support and institutionalise these conditionalities.

The fourth criterion that countries must meet in order to receive HIPC Initiative assistance is that countries must “have developed a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process". In other words, eligible countries must sit down with all stakeholders involved in the loan process, including the IMF and the World Bank, and discuss and document the “macroeconomic, structural and social policies and programs that a country will pursue over several years…”.

One might suggest of the PRSP, and, as an extension the HIPC Initiative – and of other IMF and World Bank programs and initiatives for that matter - that these are essentially legal contracts that guarantee the compliance and subordination of recipient countries. Just as Structural Adjustment Programs (SAPs) were conditioned on the basis of market reform so to is the HIPC Initiative. In fact, some critics claim that after decades of failure and bad publicity the Poverty Reduction and Growth Facility (PRGF) programs are simply repackaged Structural Adjustment Programs. Conditionalities attached to IMF and World Bank loans have long been criticized for their market-orientated reforms on public industries and services – services such as telecommunications, electricity, transportation, healthcare and water services among others. The IMF and World Bank argue that these reforms necessarily strengthen and secure property rights and the rule of law in loan recipient countries so as to create a favourable investment climate for the private sector. In a 2005 joint policy paper outlining a ‘Five Point Agenda’ to meet MDGs, the IMF and World Bank themselves note that their operations seek to “improve the enabling climate for private activity by removing regulatory and institutional constraints and (by) strengthening economic infrastructure…”.