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Highly Indebted Poor Countries

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Highly Indebted Poor Countries (HIPC), in the international economic system, have been assessed by the World Bank and other bodies to have stalled in development, with a debt burden they cannot reasonably discharge.
The Joint IMF-World Bank's comprehensive approach to debt reduction is designed to ensure that no poor country faces a debt burden it cannot manage. To date, debt reduction packages under the HIPC Initiative have been approved for 35 countries, 29 of them in Africa, providing US$51 billion in debt-service relief over time. Five additional countries are potentially eligible for HIPC Initiative assistance.[1]

It was created in 1999, and, in 2005, was supplemented by the United Nations' Millennium Development Goals (MDGs), with the Multilateral Debt Relief Initiative (MDRI).

Eligibility

To qualify for HIPC assistance, a country must:[2]

  • face an unsustainable debt burden - usually expressed as debt to export ratio
  • demonstrate a commitment to poverty reduction: by having developed a Poverty Reduction Strategy Paper through wide consultation of its citizens
  • have established a track record of good financial management: through programmes supported by the International Monetary Fund and the International Development Association.
  • be very poor: demonstrated by being eligible to borrow from the World Bank on very favourable terms and to receive special support from the International Monetary Fund.

To demonstrate the required commitment to poverty reduction and financial management, the country generally needs to be a weak state rather than a failed state.

Remediation

Debt relief is delivered in two stages:[2]

  1. When countries reach the first stage, Decision Point, they receive interim relief on their debt service. They must then continue to perform well. They also need to implement key reforms that were agreed at Decision Point, for example tackling corruption.
  2. When HIPC governments have demonstrated progress in poverty elimination and improving their policies, they reach the second stage, Completion Point. At this point, their debts get cancelled. Since the Multilateral Debt Relief Initiative was created in 2005, countries receive 100% cancellation of their debt.

Participants

As of January 2010, 28 countries are past the Decision Point, 7 are in an interim stage, and 5 have not reached the Decision Point.

Past Decision Point

Interim Countries

Pre-Decision-Point Countries

References

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