THE WHITE HOUSE
Office of the Press Secretary
|For Immediate Release
|June 18, 1999
The Cologne Debt Initiative
The G-7 leaders have endorsed a new Initiative to enable Heavily Indebted Poor
Countries (HIPCs) to receive deeper, broader and faster debt relief in return for
firm commitments to channel the benefits into improving the lives of all their
people. The HIPC Initiative was created in 1996 to provide deeper multilateral
debt reduction for poor countries with unsustainable debt burdens.
New focus on poverty: The Cologne Initiative calls on the International
Financial Institutions to develop a new framework for linking debt relief with
poverty reduction that centers around better targeting of budgetary resources for
priority social expenditures, for health, child survival, AIDS prevention,
education, greater transparency in government budgeting, and much wider consultation
with civil society in the development and implementation of economic programs.
Substantially deeper relief: Together with earlier debt relief commitments,
the Cologne Initiative provides for reduction of up to 70 percent of the total
debts for these countries, (reducing the stock) from about $127 billion today to as
low as $37 billion with the cancellation of official development assistance (ODA)
debt by G-7 and other bilateral creditors. In today’s dollars (net present
value - NPV terms), this would more than triple the amount of relief to be provided
from $13 billion under the current HIPC framework to as much as $50 billion. This
would be accomplished by reducing the HIPC program target ratios for the NPV of
outstanding debt to 150 percent of exports, and 250 percent of government revenues,
with fiscal thresholds of 30 percent exports to GDP and 15 percent revenues to GDP,
and by providing full cancellation of ODA debts.
Faster relief: Relief will be available significantly faster than under the
current framework by providing early cash flow relief ("Interim Relief") and
allowing earlier stock reduction.
Broader participation: The number of countries expected to qualify for HIPC
relief would rise from 26 to 33, meaning that more than 430 million people could
ultimately be affected.
Releasing resources for priority needs: For the average HIPC country, the
share of scarce government revenue devoted to debt service could fall by 10
percentage points to a ratio for debt service to revenues of well below 20 percent
and close to 10 percent in some cases. This is equivalent to a reduction in
actual payments of about 25 percent. Mozambique’s debt will be reduced by some $3.5
billion ($1.7 billion in NPV terms), for example, which could cut in half the
share of government revenues allocated to external debt service from over 30
percent to about 15 percent in 1999 and free about $30 million in budgetary
resources each year. These savings are equivalent to over half the health budget
in 1999 in a country where children are 3 times more likely to die before the
age of five than they are to go to secondary school.
In proposing this Initiative on March 16, President Clinton stated that "Our goal
is to ensure that no country committed to fundamental reform is left with a debt
burden that keeps it from meeting its people's basic human needs and spurring
growth. We should provide extraordinary relief for countries making extraordinary
efforts to build working economies." On June 16, the President pledged "to work to
find the resources so we can do our part and contribute our share toward an expanded
trust fund for debt relief."