Eurodad reports on the announcement at the World Bank’s Spring Meeting that the G8 deal enhancing HIPC was approved:

Debt Cancellation: No Major Surprises – Bank Approves MDRI and Expands HIPC to 4 More Countries

At this year’s Bank/Fund Spring Meetings final agreement by the Bank’s Board of Governors was secured for the Multilateral Debt Relief Intiative (MDRI). This paves the way for MDRI relief to begin for the first 18 beneficiary countries (minus Mauritania) on 1 July 2006. Under the MDRI, IDA is expected to provide around US$37 billion in debt relief over 40 years. The Bank indicated that it had secured 87% of the cost for the first 18 countries from donors but the Development Committee communiqué still urged donors “to secure their financing commitments to achieve full compensation of IDA’s foregone reflows and to ensure that this initiative is truly additional to existing commitments”. Some worry clearly still exists within the Bank in relation to its capacity to support the MDRI should donors renege on their pledges.

The issue of Mauritania - which has been temporarily knocked-off the list of beneficiary countries – was raised. The IMF confirmed that this summer a Fund mission would travel to the country to assess progress on a number of macroeconomic and governance reforms. The country was recently denied immediate access to MDRI cancellation on the grounds that the country had falsified data in order to reach completion point under the HIPC Initiative as well as a number of other transparency grievances. Both the Bank and Fund were decidedly upbeat about the progress made by the Mauritanian authorities over recent months as well as the government’s commitment to poverty reduction. They felt it entirely possible therefore that the country could be granted this extra relief before the end of this year.

As expected, the World Bank also confirmed expansion of the Heavily Indebted Poor Countries (HIPC) Initiative to include four further countries: Eritrea, Haiti, Kyrgyz Republic and Nepal. Two further countries had qualified for the scheme under the 150% net present value of debt-to-export indebtedness ratio (Sri Lanka and Bhutan) however both have indicated that they do not wish to participate. NGOs questioned the Bank on whether their reluctance to avail themselves of the initiative may have anything to do with the structural adjustment conditionalities associated with the scheme. The Bank did not seem to believe this was the case however and pointed to governments’ possible concerns related to lower credit-ratings and reduced access to capital markets. The status of Afghanistan as a potential HIPC still remains unclear and will depend on how discussions with Russia over a series of disputed claims are resolved. Afghanistan may therefore still enter the initiative.

(World Bank press release - click here )

Beyond this though, the Bank and Fund propose closing the list of countries potentially eligible for the HIPC Initiative and therefore for multilateral debt cancellation. This is despite the fact that NGOs repeatedly pointed to examples of other countries in clear-cut need of debt cancellation. These include IDA - only countries such as Kenya as well as IBRD-borrowers such as Ecuador. The Bank indicated that the issue was fundamentally one of resources not one of not acknowledging that some debt reduction could clearly be of benefit these countries.

The Independent Evaluation Group (IEG) also presented its recent evaluation update of the HIPC Initiative. The evaluation update, which had very restricted terms of reference, found that the HIPC Initiative had indeed freed-up resources for investment in poverty reduction expenditures however the scheme could only serve as “a base” from which debt sustainability could be achieved. The HIPC Initiative was not sufficient to guarantee that debt sustainability would be maintained. This is a far cry from the “robust exit from the burden of unsustaiable debt” which was proclaimed by former Bank President Wolfensohn as the key objective of the initiative. The evaluation update noted that in 11 out of 13 completion point countries analysed, debt ratios had deteriorated significantly. The evaluation update did not consider the appropriateness of the conditionalities associated with the programme, nor the suitability of the debt-to-export ratio as the indicator of debt sustainability.

Access the complete report here