Heavily Indebted Poor Countries initiative

The Heavily Indebted Poor Countries initiative is the major international scheme for debt relief and cancellation. This page explains what it is and why it is so woefully inadequate.

What is HIPC?
The Heavily Indebted Poor Countries (HIPC) initiative was set up in 1996 by the World Bank and the IMF, to reduce poor countries' debts. Although it was reformed in 1999, after G8 countries came under pressure from campaigners, it is still failing the world's poor. It is time to abandon HIPC, and ensure that there is 100% cancellation of all unjust and unpayable debts, without harmful conditions.

Who controls HIPC?
HIPC is monitored and implemented by the World Bank and IMF. But most other creditors - rich countries, regional development banks and some private creditors - are encouraged to take part. Most, but not all, do. Commercial creditors in particular often fail to deliver their share of debt cancellation under HIPC.

How do countries qualify for HIPC?

The scheme was effectively closed to new entrants in 2006 however this could change according to the will of the creditors who control the process. HIPC was open to those poor countries which met the following criteria between 1996 and 2004. Firstly their income per head was low enough to qualify for IDA assistance. Secondly that the country had debts of more than one and a half times their annual export earnings (or, if they had lots of exports, more than two and a half times their government revenue). Thirdly they have a World Bank and IMF programme. In order to embark on the HIPC scheme, they have to have a "track record" with the IMF: that is, have done what the IMF says for at least three years! Then they have to comply with a large number of conditions in order to complete HIPC and get debts cancelled. (Eligible countries are listed below.)

What does HIPC give?
HIPC was heralded by rich governments as offering "an exit from unsustainable debt". What this meant was a reduction in debt to a level deemed 'sustainable' by the World Bank and IMF. That level - regardless of a country's circumstances - was set as debt of one and a half times the value of export earnings. On entering HIPC, countries get some relief on debt payments, and on completing HIPC (which can take many years), they get cancellation of debt to this 'sustainable' level. In 2005, thanks to an unprecedented level of campaigning on debt, this was extended. Under the 'Multilateral Debt Relief Initiative' (MDRI), countries that complete HIPC now get cancellation of most debts to the IMF, African Development Fund and the World Bank. This is good news - but does not address the problems of HIPC conditions and structure, or the countries - and debts - left out.

What do countries have to do to complete HIPC?
When countries enter HIPC, a 'Decision Point document' sets out what they need to do to complete HIPC. Typically, these conditions will include measures to target poverty - but it also includes compliance with all kinds of economic policy conditions which can undermine poverty-reduction efforts. For instance, countries have to cut public spending, meaning fewer teachers or doctors; they are told to privatise basic services like water or electricity, meaning worse service and higher prices for the poor; or they are made to liberalise trade, leaving poor farmers and producers unable to compete with imports from the rich world. Jubilee Debt Campaign's Cut the Strings campaign calls for an end to these conditions.

Which countries have completed HIPC?
32 countries so far. These countries are: Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Republic of Congo, Democratic Republic of Congo, Ethiopia, Gambia, Ghana, Guinea Bissau, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, São Tomé and Príncipe, Senegal, Sierra Leone, Tanzania, Togo, Uganda, Zambia.

Which countries have entered but not completed the HIPC process?
A further four countries have reached the first stage ('Decision Point') of the HIPC process, at which point they receive some relief on debt repayments. These countries are: Chad, Comoros, Cote D'Ivoire, Guinea.

Which other countries are likely to enter HIPC?
Another four countries are eligible to enter the scheme: Eritrea, Kyrgyz Republic, Somalia and Sudan. However, they will first have to start programmes with the World Bank and IMF, and stay 'on track' with the IMF for three years. Other countries - like Kenya, Ecuador or Jamaica - are not considered poor or 'indebted' enough, by a calculation that takes no account of a country's human development needs or the origins of its debts.

So, what is wrong with HIPC?

• HIPC takes too long: more than 10 years for 32 countries so far.
• HIPC offers far too little - total cancellation of all unpayable and unjust debt is needed.
• HIPC is too limited - many more countries need and deserve debt cancellation.
• HIPC comes with damaging and unfair strings attached.
• HIPC does not include all debts: debts are only partially cancelled, and some countries, banks and companies refuse or fail to take part in the HIPC process at all.
• HIPC is entirely controlled by creditors: they do not accept responsibility for their part in creating and maintaining the debt crisis, or allow poor countries to have a say.