IMF Survey: The Annual Meetings in Prague set a goal of bringing 20 countries to their decision points under the enhanced Heavily Indebted Poor Countries [HIPC] Initiative by the end of this year when they will begin to receive relief on their debt payments. How close are we to meeting that objective?
Boorman: By early December, the Executive Boards of the IMF and the World Bank had taken the necessary decisions to make assistance available to 13 eligible countries. Even now, most of them are receiving interim assistance.
We have been working actively on 11 other countries over the last several months, and I am confident that we will reach the decision points for at least 6 and, more likely, 8 or 9 of them, so that we will be able to meet or be very close to the target of 20 countries by the end of December.
In every case, difficult questions have had to be answered, particularly with our focus on reaching this objective by the end of the year. The deadline has helped to coalesce support and has focused everyone’s attention on making sure that everything is running as smoothly and as rapidly as possible. At the same time, we feel, as do our shareholders, that the elements of the program have to be right and designed in a way to ensure that the objectives of poverty reduction in these countries can be met and that the debt relief provided is used to further those objectives.
IMF Survey: Once the goal of assisting 20 countries has been met, what will it mean in terms of actual debt relief for the poorest countries?
Boorman: The countries that we will bring to the decision point by the end of the year will receive varying degrees of debt relief. The initiative is tailored to the specific circumstances of each of the countries and is intended to put them in a situation where their debt service and debt profile will be sustainable from now on. That requires different degrees of relief for each country. When you take account of the assistance being provided through the Paris Club and bilateral, multilateral, and regional agencies, the debt of these countries will be reduced by about two-thirds on average. And, contrary to the statements of some critics, all of these countries will see a significant immediate reduction in their debt-service payments. In one country, Zambia, the reduction is not as large as in other cases, but here the IMF is providing its relief on exceptional terms.
IMFSurvey: Is this relief significant in terms of the overall outstanding debt of the poorest countries?
Boorman: It is indeed significant, in terms of its size and in that it is being provided by the multilateral institutions. This is a big change in the way these institutions have operated and a significant move in the direction of trying to deal with what has become an unsustainable situation in these countries. But, most important, its significance will be measured by the extent to which the relief that has been committed to these countries is used in a way that actually reduces poverty.
IMF Survey: As you note, a central component of the enhanced HIPC Initiative is the stronger and more explicit link between debt relief and poverty reduction. What’s the significance of this and how is it working?
Boorman: Probably most important are the steps that the World Bank and the IMF have taken to change their operations for assisting the HIPC countries. Foremost is the development of the poverty reduction strategy initiatives for these countries and other low-income countries. These strategies have a number of important dimensions. First is to make sure that the IMF and the World Bank are doing everything they can as effectively as possible to help countries develop their poverty reduction strategies and to ensure that the programs they support in these countries work toward that goal. A second important objective is to ensure that the countries themselves develop their programs through a participatory process within the government and with civil society and parliaments and that we can endorse their objectives. We have learned that it doesn’t work very well if we try to establish policies in Washington and then take those policies to the countries and ask them to implement them. This concept of “ownership” of a program goes very deep and entails a desire to see that there is support throughout the government, in the political arena, and among the civil community for the measures being taken.
Each country has different social, cultural, and political traditions that can affect its situation, and we—and they—are wrestling with what a consultative process means in these different contexts. We can’t go in and dictate a process to a country. It has to be consistent with a country’s traditions, which is not an easy task. We realize the difficulty of coming to a fullblown poverty reduction strategy, but we didn’t want this to get in the way of the early delivery of assistance. To square that circle, we developed an interim poverty reduction strategy paper [PRSP], which is basically the first step a country needs to take in developing a fullblown poverty reduction strategy. Most of the countries that we have brought to the decision point so far have been through this interim PRSP.
IMF Survey: How would you answer the critics who argue that the HIPC Initiative is overly complex and too slow in delivering results?
Boorman: The world itself is complex. We could have decided simply to provide relief to the HIPC countries through immediate cash assistance, debt write-offs, or other devices. There was and is virtually no support for that approach, because the community that is contributing to this effort—the multilateral institutions, bilateral donors, and others—wants this relief to be used for the benefit of the populations of these countries through effective programs of poverty reduction. This is an area that these institutions and the countries have been working on for years. What is needed are effective programs that can be supported by the resources made available through debt relief, together with getting the needed political support for structural and developmental programs within the countries and putting in place the monitoring devices, budgetary processes, and all the other measures that are necessary to make sure the relief is really used for the intended purposes. This process can be jeopardized in many of these countries if there are program design problems, if their budgets are not executed properly, or if there is corruption. The world is sometimes a messy place. Some of the complexity, some of the time that it takes to implement this initiative, reflects the fact that we and the countries concerned are trying to get it right.
IMF Survey: As you mentioned earlier, the IMF and the World Bank cooperate closely in the HIPC Initiative and the PRSP process. How successful has that cooperation been in practice? Is it possible to avoid duplication?
Boorman: Cooperation between the two institutions in the context of the HIPC Initiative has been almost a model of the way we can work together. We have been together on this initiative from day one and we have taken it through various stages. The original initiative had features that some people thought were contributing to slower delivery of assistance than was thought necessary; also, questions were raised about the amount of relief being given. We worked together to support the discussions that began following the initiative of Jubilee 2000 and other organizations to try to press the international community to provide deeper and faster relief. However, we had to deal with the reality of finding the money to produce that result. The political pressure engendered by the lobbying efforts of these organizations and others was helpful in capitalizing additional support and securing more resources from the multilateral institutions and bilateral lenders to enable us to make the initiative more generous than it was initially.
There’s another important dimension to this issue. Over the years, there have been questions about whether the operations of the IMF and the World Bank in these countries are well tailored to each other and complement each other, in terms of the substance and timing of the programs. Legitimate concerns have been raised about whether the two institutions are working together as effectively as possible. These are precisely the discussions that led to the concept of the poverty reduction strategy paper, which gives the country itself more leadership in developing its program and ensures that the IMF and the Bank will work together with the same objectives and in support of the same programs that have been developed by the country’s authorities. In the IMF, we modified what had been the Enhanced Structural Adjustment Facility [ESAF] and converted it into the Poverty Reduction and Growth Facility [PRGF] to tailor our own operations better to the PRSP. The Bank has created the Poverty Reduction Support Credit [PRSC], which will allow all their operations to coalesce within a single framework that would be parallel to the PRGF. And we have set up a joint implementation committee, which meets regularly to track progress and resolve any emerging problems of collaboration.
IMF Survey: The Managing Director said in his Annual Meetings address (IMF Survey, October 9, page 303) that a real breakthrough in poverty reduction would be possible only if private savings and investment take root in the poorest countries. What progress has been made in these areas?
What is needed are effective programs that can be supported by the resources made available through debt relief.
Boorman: Over the last 5-10 years, there has been a much broader acceptance of the model of an open market capitalist economy. We all know the experiments that African countries, in particular, went through with various forms of socialist economic regimes and the damage that some of these experiments did to the continent. Acceptance of the paradigm of open market economies holds the promise for many of these countries to do far better in terms of growth and poverty reduction. In a market economy, you must have good regulation, good supervision, strong financial institutions, commercial codes that protect property rights, and a judicial system that provides surety to investors, their property, and their contracts. These are key to stimulating domestic savings, on the one hand, and stimulating an inflow of resources from outside the country, on the other. Most important is to make sure that such resources are used effectively and produce growth in these countries.
However, countries’ needs go well beyond simply using their own savings efficiently and attracting foreign direct investment to questions about the access these countries have to international markets for their goods. We know that there are still impediments, whether they stem from the common agricultural policy in Europe or from the health and safety regulations that are imposed in most industrial countries. It is not a matter of dismantling the regulations but, rather of assisting the developing countries to jump over the hurdles created by some of these regulations.
The estimates of the benefits to the poor countries from opening the markets of the industrial countries more widely are dramatic. They far surpass anything that could be provided through debt relief alone. Debt relief by itself is only one element of a much broader menu of initiatives that these countries—and the international community—need to integrate themselves better with global trade markets and, as a result, to grow faster than they have in the past. In this context, it could also help enormously if the industrial countries would begin to move toward the 0.7 percent of GDP figure for overseas development assistance.
IMF Survey: How would you respond to the assertion of groups such as Jubilee 2000 that the simplest and fairest course would be that of complete debt forgiveness?
Boorman: Complete debt forgiveness is a superficially attractive option. When you see the situation of some of the poorest and most heavily indebted countries, and when you think back to their geopolitical history and the manner in which they were exploited during the cold war for the purposes of one side or another, you are obviously tempted in the direction of some form of debt forgiveness. However, much of their debt is legitimate debt, commercial debt for development projects, or the result of the provision of aid. Another large part stems from the resources that the multilateral institutions provided in support of countries’ development programs. So the overall picture of the composition of debt is a mixed one.
There are other very difficult issues that would have to be addressed if one were to consider a full debt write-off. First, just writing off debt is not without cost. Someone has to pay the burden of that write-off. The international community has gone far in effectively mobilizing resources. Going further would be very difficult. One of my fears is that, if we did try to go further at this stage, we would end up simply diverting resources from the already low level of overseas development assistance flows, and there would be no net gain to the indebted country.
Another important aspect that can’t be ignored is that, if you decide to write off fully the debt of the poorer countries, where do you draw the line? Some countries would inevitably fall just on one side or the other of the line. There certainly is an issue of equity and fairness about drawing that line and whether or not it is effective. It would not be effective if it harmed those countries that have been the most responsible in their recent policies.
My final thought goes back to where we began, with the objective of bringing 20 of the HIPC countries to the decision point by the end of this year. This number does not exhaust the list of countries that will require assistance to have a sustainable debt situation and to devote their resources to poverty reduction. Let us not forget that, while the immediate objective is important, it is only the first step. In doing our best with the HIPC Initiative, we should not lose sight of the other countries that need assistance.
Even for those countries that will have been brought to the decision point by the end of December, this is only the beginning in implementing poverty reduction strategies and bringing debt relief to these countries. As I have repeatedly emphasized, debt relief needs to be used properly to produce the results that the countries and those providing the resources want. There is a long road ahead in terms of sticking to the policies that are identified in the poverty reduction strategy and in implementing policies that hold the promise of producing the desired results. This will be no easy task. An important part of this equation still needs to be filled in by the countries themselves.
Jack Boorman, a U.S. national, holds a Ph.D. in economics from the University of Southern California (USC). He taught economics at USC and the University of Maryland and served with the U.S. Federal Deposit Insurance Corporation before joining the IMF staff in 1975. He served as a division chief in the European and Asian Departments of the IMF and as Assistant Director of the European Department before becoming Deputy Director of the then Exchange and Trade Relations Department (now Policy Development and Review Department) in 1987. He also served, from 1976–78, as the IMF’s Resident Representative in Indonesia.
The next issue of the IMF Survey will be published on January 8, 2001.