We very much welcome the progress made in implementing the HIPC Initiative since mid-1999. The overall picture is encouraging. The debt ratios of HIPC countries that already passed the decision point should drop substantially over the next two years. Also, increased attention is now being paid to how debt relief relates to poverty reduction, and debt management is being addressed more systematically than in the past. More recently, the Bank and the Fund started to reflect on how to strengthen public expenditure management and related systems to meet the requirements of both the HIPC Initiative and the PRSP process.
Many challenges remain, however.
We still have not fully funded the Initiative. The ultimate goal of the Initiative is to help poor countries make long-term external debt sustainable. We will fail in this attempt if we simply reallocate development resources towards debt relief without paying attention to additionality, i.e., without increasing the total amount of aid. We will equally fail to achieve sustainability, if we do not succeed in removing the single most important reason for the debt overhang of the HIPCs, namely their poor growth record over the past decades. Low rates of growth are as much the cause as the consequence of the current rates of indebtedness.