For those unfamiliar with the term, certain countries are considered Heavily Indebted Poor Countries, or HIPC. These are countries that are eligible for special assistance from the International Monetary Fund and World Bank.

The annual “HIPC Status of implementation” report was published a couple weeks ago. There’s some very interesting information here:

In total 35 out of 40 HIPCs have qualified for assistance; 26 have reached completion point. Of the five remaining pre-decision point HIPCs only the Comoros might reach decision point in the next 12 months. The other candidates are either not working towards reaching decision point (Eritrea, Kyrgyz Republic) or find themselves in a governance situation that does not allow progress (Somalia and Sudan). So it will be interesting to see which countries can reach completion point. Given the status of implementation we can estimate this will be Afghanistan and Republic of Congo (Brazzaville) in 2009 as well as Liberia in the first quarter of 2010. Progress of the single biggest debtor at decision point, the Democratic Republic of Congo, is currently stalled, because the Bretton-Woods institution considers its debt sustainability threatened by the DRC’s plan to take a multi-billion dollar loan of the Chinese EXIM-Bank.

For the 35 post-decision-point HIPCs, poverty reducing expenditures between 2001 and 2008 increased by 2 percentage points of GDP, on average, while debt service obligations declined by the same percent. The total amount of debt cancellation now stands at $117 billion, out of which $72 billion was cancelled under HIPC and $45 billion was cancelled under MDRI – the Multilateral Debt Relief Initiative (all in nominal terms). This is an increase of roughly $5.5 billion in cancelled debt ($3 billion under HIPC and $2.5 billion under MDRI) since last year. The number of post-completion-point countries that are at risk of re-incurring unsustainable debt (especially due to the global economic crisis) has increased from four in 2008 to five now.

This last point is showing the importance of continuing and expanding the initiative. Post completion point countries must have a chance to maintain bearable levels of debt, even when shocks, such as the global economic crisis, occur. This can be done firstly, by providing grants rather than loans. Otherwise, financing the achievement of the MDG’s in many countries will be tantamount to reaccumulating unsustainable debt.

Secondly, a sovereign debt workout mechanism is needed. This is a comprehensive way to preserve the achievements of debt relief. Governments in the South and civil society have long been calling for such an “international insolvency procedure” for states. It would be applied by a panel similar to the arbitration panel structure of the World Trade Organization (WTO).

-Andreas Huebers