Debt relief moves hit by poor progress on reforms




By Alan Beattie

10th September, 2001.

The international initiative to relieve the debt of the world's poorest countries is being hampered by countries failing to implement key reforms and the reluctance of some government and private creditors to write off debt, according to an internal analysis by the World Bank.

It says that, while 23 heavily indebted poor countries (HIPCs) out of the 40 or so eligible have qualified for interim relief, "progress has been slow" in preparing debt relief programmes for the rest. Many of the countries lack effective government or are affected by armed conflict. Moreover, 13 of the 23 qualifying countries have experienced delays in progressing to full debt relief.

The study says that rich country creditors are generally on track with granting relief on bilateral debt and in contributing to a trust fund to enable the World Bank and International Monetary Fund to write off their share.

But it also warns that some creditor governments, including China and some Middle Eastern countries, have yet fully to support the initiative. Some multilateral lenders such as the Islamic Development Bank have also yet to approve debt relief.

The study also expresses concern that some commercial creditors - such as the holding company Leucadia in the case of Nicaragua - have bought up debt owed by HIPCs and begun litigation to force payment. "In some cases, HIPCs have paid commercial creditors in full because of the threat of litigation or to avoid disrupting a commercial relationship," it says. "This could endanger the achievement of sustainable debt levels."

Axel von Trotsenburg, head of the HIPC unit at the World Bank, stressed that the report was an interim bank document. He said: "We are being as aggressive as we can in engaging with countries to get them into the debt relief process. In countries like Sierra Leone, I have flown staff in there by helicopter to try and get the debt dialogue going.

He said that debt owed to commercial creditors and middle-income country governments was not a large part of the total. "But we are still concerned to get them on board so that HIPCs can enjoy the full benefits of debt relief," he said.