ability assessment from the IMF, and come up with an economic program approved by the IMF. This is not acceptable to the economic managers of the two countries since an IMF program is based on a debt sustainability analysis of capacity to pay. This will give the wrong signal that the two countries cannot pay their debts and will rattle the financial markets.
7. The Need to Go Beyond HIPC and MDRI Initiatives to Achieve the MDG for Low-Income and Middle-Income Countries One major criticism is that the HIPC and MDRI initiatives are easy measures for bilateral, multilateral and commercial creditors since most of the heavily indebted poor countries are de facto in default. Canceling much of these debts is just an official writingoff of much of the defaulting debts. As mentioned earlier, the new debt sustainability analysis (DSA) developed by the IMF and World Bank adds a new framework to debt sustainability analysis for low-income and middle-income countries, and this includes the Philippines and Indonesia. The new framework does not help these countries get debt-to-MDG financing. The weakest initiatives for debt relief are those aimed at heavily indebted middle-income countries such as the Philippines, Turkey and many Latin American countries. Millions of poor people live in these countries. Indonesia will join the ranks of these countries in a year or two. Furthermore, middle-income countries like Indonesia and the Philippines and low-income countries that are not members of HIPC do not qualify for the significant debt reduction of HIPC and the MDRI. The number of poor people in non-HIPC countries (both low-income and middle-income countries) far exceeds the number of poor people in HIPC countries. This is due to the fact that the most populous countries (China, India, Russia, Indonesia, Pakistan, Bangladesh, Brazil, Nigeria, Mexico, 2 3
the Philippines, Vietnam, Turkey, Argentina) are all not part of HIPC, and most of these large nonHIPC countries have between 20 percent and 40 percent of their population below the poverty line. Furthermore, there are 40 HIPC countries but only 29 of them had either finished or are in the process of undergoing a debt relief programme. The others do not have any debt relief programme at all. The World Bank in 2003 listed 54 low-income countries, 58 lower middle-income developing countries and 40 upper middle-income developing countries, totaling 152 developing countries. The UN Population Fund (UNFPA) estimated that there are three billion people living on less than US$2 a day in 20052. The World Bank estimated the poor people in 2001 to be around 1.1 billion people (using the US$1 a day poverty threshold.) The total population of the HIPC countries with a debt relief programme (29 countries) totaled 448,234,8003 in 2005. Thus even if we assume 100 percent of the population of these HIPC countries are poor (which obviously is not realistic), it is safe to say that the majority of the world’s poor still reside outside these HIPC countries, even if these HIPC countries are some of the poorest in the world. It is therefore obvious that if poverty reduction and achieving Goal One of the MDG is a serious endeavor, debt relief cannot stop merely at the doorsteps of the HIPC countries. Given the dismal showing of developed countries’ commitment to the Millennium Declaration and the Financing for Development to commit 0.7 percent of their GNPs to external development assistance to developing countries, there is much room to increase assistance and debt relief to both low-income and middle-income countries, including both HIPC and non-HIPC countries. Developed countries, in justifying their lack of external development assistance, often claim that HIPC and low-income countries should be given priority over developing countries because they
UNFPA State of World Population 2005. Based on International Data Base Statistics for the 29 HIPC Countries Given Debt Relief (http://www.census.gov/cgi-bin/ipc/idbrank.pl).
FfD: Finance or Penance for the Poor
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