Debt Relief Initiative Could Cover 20 Countries by Year's End

World Bank President James Wolfensohn says he is "fairly confident" that up to 20 of the world's poorest nations will be participating by year's end in the Heavily Indebted Poor Countries (HIPC) debt relief initiative, a program strongly backed by the United States and other major industrialized countries.

"I feel fairly confident, not totally confident," Wolfensohn said at a September 21 press conference in Prague, where the world's financial officials are gathering for the annual meetings of the International Monetary Fund (IMF) and the World Bank. The meetings conclude September 28.

Forty-one of the poorest countries in the world - 32 of them in Africa - are eligible for the IMF/World Bank administered HIPC program, in which the governments enter into economic reform programs in exchange for phased writing down of debts owed to the international financial institutions and industrial country donors.

The HIPC program, launched in 1996, was enhanced last year at the urging of the Group of Seven (G-7) major industrialized countries to allow faster provision of debt relief. The freed-up funds are to be directed to social spending, ranging from education to health care, which will help reduce poverty.

"We have an objective of trying to make sure these programs move forward, provided we have a poverty reduction strategy and we can be assured where the money goes," Wolfensohn said. The World Bank president emphasized that the debt relief is conditional. "I don't think anybody would want us to relieve debt if we saw the money flying out of the windows."

Wolfensohn emphasized, "the whole purpose of HIPC is to try to give a stimulus to social spending and to try to improve their internal flow of funds to poor people."

As of September, one country, Uganda, had completed the enhanced program while nine others had reached the mid-way point - Benin, Bolivia, Burkina Faso, Honduras, Mali, Mauritania, Mozambique, Senegal, and Tanzania - according to an IMF fact sheet. At least seven other countries had entered into preliminary discussions, the fact sheet said.

Implementation of parts of HIPC has been threatened by the lack of action by Congress on providing the U.S. share of the funding for the initiative, administration officials have said. Wolfensohn said that with the passage by the U.S. Congress of funding now under consideration, the "immediate needs of HIPC ... are probably met."

Separate bills with HIPC funding have been approved in the U.S. House of Representatives and the Senate Appropriations Committee. The House bill provides $225 million for funding debt relief while the Senate version contains $75 million. The bills will have to be reconciled as soon as Congress nears adjournment. The Clinton administration has made getting the debt relief funding a high priority before it leaves office early in the New Year.

The funding is used to compensate the IMF, the World Bank Group and the regional development banks for the written-off debt. Wolfensohn defended this practice, noting that most of the debts covered by HIPC are concessional loans borrowed from the International Development Association (IDA), a World Bank affiliate which lends to the poorest countries. Because IDA accounts for nearly 50 percent of new lending, cancelling debt with no reflows or repayments would substantially reduce the amount of future lending, Wolfensohn said.

HIPC and the Poverty Reduction Strategy Papers, in which countries outline their economic reform plans, was among the subjects discussed when the World Bank's policy-making Development Committee met on September 25, Wolfensohn said.

Other subjects set for discussion include poverty reduction, the impact of information technology and what role the World Bank can play in the provision of global public goods such as environmental protection and disease prevention.

Wolfensohn said that with the world economy apparently entering a period of growth, it was time for developed countries to expand their links with developing countries.

With world population set to expand by 2,000 million in the next 25 years, and virtually all of that in the developing countries, he said, the industrialized countries cannot consider its future without some policy to help the developing world.

"I think demographics are going to force us to think in terms of a singular universe," he said.