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Community participation in the initiative to ease the debt burden of highly-indebted poor countries (HIPC)

This communication sets out the Community's contribution to the world debt relief initiative for highly indebted poor countries (HIPC).

ACT

Commission Communication of 26 October 1999 on Community participation in the debt relief initiative for highly indebted poor countries (HIPC) [COM(99)518 final. Not published in the Official Journal].

SUMMARY

Background

This initiative comes under the framework of the global initiative to help highly indebted poor countries (HIPC) launched by the International Monetary Fund (IMF) and the World Bank in September 1996. It represents a coordinated effort by all the donors, in particular multilateral creditors, and it aims to relieve the debt of the poorest countries. For the first time, a close link has been stressed between poverty alleviation strategies, structural adjustment programs and the debt relief initiative.

At the Cologne G7 summit in July 1999, ministers agreed to an expanded initiative that would provide faster, more comprehensive and broader debt relief. The total cost of the initiative was estimated at around US$ 61 billion at net present value in 2004. This initiative, which was initially to be for a two-year period, has been extended four times (in 1998, 2000, 2002 and 2004).

Eligible countries

The initiative covers the poorest countries that are making concerted efforts to adjust and are committed to fighting poverty. It covers, in particular, those poorest countries which are already receiving supplementary assistance from the World Bank and the IMF, and whose debt burdens are deemed to be unsustainable after all other debt relief measures have been applied. Certain ACP countries are among the countries concerned.

Role of the European Community

As a major partner of developing countries, the Community has a key role to play, especially given the new high total cost of the initiative. The resources granted from the interest accrued on EDF funds, as provided for by Decision 98/453/EC of July 1998 concerning exceptional assistance for the heavily indebted ACP countries, will not be sufficient to cover the financing of the new enhanced initiative.

The Commission has indicated that it is prepared to use funds in the framework of existing European Development Fund (EDF) instruments for the purpose of making a substantial contribution towards alleviating the debt burden of ACP States which are eligible for the HIPC initiative. So far the Community has allocated over EUR 1.6 billion to the initiative, to which it is contributing both as a creditor and as a donor, particularly for the ACP countries. EDF resources are used only for eligible ACP countries. A contribution of EUR 54 million from the budget has been made for the Asian and Latin American countries.

Role of the Community as a creditor

The Community mainly supports development through non-refundable grants. It is therefore only a small multilateral creditor. According to the most recent estimates, it accounts for only about 2% of the total cost of the HIPC initiative. As a creditor, the cost of the Community contribution so far has been estimated as EUR 680 million. The resources granted are allocated mainly out of EDF interest and intra-ACP reserves.

Role of the Community as a donor

Over and above the Community's contribution as a creditor, it is participating in the initiative as a donor. Unallocated resources from the 8th EDF and previous EDFs have been the main source of funds for the EU's contribution as a donor. As a donor, the Community has so far allocated EUR 934 million to the HIPP Trust Fund managed by the World Bank.

Additional participation

As a key partner of the developing countries, the Commission considers that the Community should make an additional contribution. In 2001 the Council approved an additional contribution of EUR 60 million, which will enable early repayment in full of the special loans to the least developed ACP countries eligible for the HIPP initiative.

Last updated: 24.03.2006
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