IMF Managing Director Rodrigo de Rato welcomed the proposal by the finance ministers of the Group of Eight (G-8) countries to relieve the debt of the poorest countries. “This proposal goes a long way toward helping Heavily Indebted Poor Countries (HIPCs) escape a heavy burden,” he said in a statement after attending the meeting in London June 10-11. He said the IMF will examine the details and implementation of the G-8 proposal and work with its members toward an agreement.
The proposal, which is to be put to the Annual Meetings of the IMF and World Bank in September, could lead to the cancellation of all outstanding debt to the IMF, the World Bank, and the African Development Bank for eligible HIPCs, allowing them to accelerate poverty reduction and boost their ability to achieve the Millennium Development Goals. The countries’ debts would be cancelled once they have reached the HIPC initiative’s completion point, meaning that they have implemented key policy reforms, maintained economic stability, and adopted and implemented a poverty reduction strategy for at least one year.
Currently, 38 countries potentially qualify for assistance under the HIPC initiative, 27 of which already receive debt relief under HIPC. If the G-8 proposal is adopted by the member countries of the IMF and the World Bank, 18 HIPCs could benefit immediately: Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia. The remaining HIPCs would become eligible for debt cancellation when they reach the completion point.
Existing IMF resources are expected to cover the costs of IMF debt relief without undermining the IMF’s financing capacity. De Rato noted that the proposal does not compromise “the commitment of the IMF to assist its poorest members and meet existing and projected obligations.” In cases where debt relief cannot be covered by existing IMF resources, such as countries in arrears like Liberia, Somalia, and Sudan, additional resources are to be provided by donors. The G-8 finance ministers also proposed setting up a trust fund to support poor countries facing commodity price and other exogenous shocks. De Rato said he welcomed the proposal. The G-8 government leaders are scheduled to meet in Gleneagles, Scotland, for their annual economic summit on July 6-8.