Debt relief: The "HIPC Initiative"
The Heavily Indebted Poor Countries (HIPC) Initiative is an international debt relief mechanism that provides special assistance to the world's poorest countries. It was launched at the G7 summit in Lyon, France in 1996 following a proposal from the World Bank and the International Monetary Fund (IMF). It is fully supported by the European Union and its Member States. The initiative was revised and strengthened in 1999 following the G7 summit in Cologne, Germany and has become known as the 'Enhanced HIPC Initiative'.
The principal objective of the initiative is to reduce the debt burden of poor countries to sustainable levels in order to ensure that no country faces a debt burden that it cannot manage. It represents a significant step forward, as it places debt relief in the framework of poverty reduction by aiming to ensure that essential restructuring and the development of a country is not compromised by servicing unsustainable debt burdens.
The funding is almost equally divided between two main types of creditor:
- Bilateral and commercial creditors: this category includes individual national governments as well as private enterprises;
- Multilateral creditors: these are multilateral banks such as the World Bank and the IMF and regional financial institutions such as the African Development Bank.
The European Union plays a dual role, participating both as creditor and donor, providing debt relief as well as direct donations to certain HIPC countries and to the HIPC Trust Fund. The biggest share of its support to the HIPC Initiative goes to the ACP countries. So far, more than €1.6bn have been pledged: €680 million in relief on its own claims and €934 million donated to the HIPC trust fund.
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