Detailed Information on the
Debt Restructuring for Heavily Indebted Poor Countries Assessment

Develop an improved system of subsidy outlay from the debt reduction program account to the debt reduction financing accounts.

Devise an efficiency performance measure to improve record keeping of debt reduction obligations and outlays between Treasury and creditor agencies.

Develop proposals for increasing the number of creditors that make use of the World Bank/IMF Debt Sustainability Framework in their decisions about lending to low-income countries.

Measure: To assess whether HIPC countries have lowered their debt-service payments, no countries that have reached Completion Point should have a debt service /exports ratio above 25 percent in 2012.

Explanation:Note that in 1999 (pre-enhanced HIPC) 37% of Completion Point countries had debt service/exports ratios above 20 percent. A Decision Point country has met or made sufficient progress in meeting HIPC criteria and as such sovereign creditors commit to reducing their debt. A Completion Point country has met HIPC criteria and as such receives 100% debt reduction available under HIPC.

Measure: The percentage of Decision Point countries that have debt service/exports ratios above 25 percent.

Explanation:Note that in 1999 (pre-enhanced HIPC) 37% of Completion Point countries had debt service/exports ratios above 20 percent. A Decision Point country has met or made sufficient progress in meeting HIPC criteria and as such sovereign creditors commit to reducing their debt. A Completion Point country has met HIPC criteria and as such receives 100% debt reduction available under HIPC.

Measure: To assess whether increased expenditures are having an impact on poverty reduction, the percentage of countries that have reached decision point are on track to cut in half (from 1990 to 2015) the prevalence of child malnutrition.

Explanation:The World Development Report includes prevalence of child malnutrition (% of children under age five) as one of the key indicators for poverty. For HIPC countries, this indicator provides more data points than other indicators of poverty. Note: HIPC by itself will have very little impact on this broad indicator. Achieving substantial progress in reducing poverty will depend on many factors including sound country economic policies capable institutions, sufficient resources used effectively, and the absence, or minimal impact of negative exogenous shocks, natural disasters, civil conflicts, etc.

Measure: To measure whether HIPC countries have increased expenditures on poverty reduction, the percentage of GDP spent on poverty reducing expenditures for countries which have reached Decision Point.

Explanation:

Measure: To assess whether HIPC countries have achieved debt sustainability and a lasting exit from debt problems, no Completion Point countries will have NPV debt/export ratio above the indicative thresholds of the Low-Income Country Debt Sustainability Framework (100 percent for poor performers, 150 percent for medium performers, 200 percent for good performers) by 2012.

Explanation:Measure is the percentage of HIPC Completion Point countries with ratios above the thresholds. (For 1999, measure reflects the percentage of all current HIPC Completion Point countries with debt ratios above the HIPC threshold.) A Completion Point country has met HIPC criteria and as such receives 100% debt reduction available under HIPC.

Measure: Following Completion Point and MDRI debt relief, no countries will have NPV of debt/export ratios greater than the indicative thresholds of the Low-Income Country Debt Sustainability Framework (100 percent for poor performers, 150 percent for medium performers, 200 percent for good performers.)

Explanation:Measure is the percentage of HIPC Completion Point countries with ratios above the thresholds. (For 1999, measure reflects the percentage of all current HIPC Completion Point countries with debt ratios above the HIPC threshold.) A Completion Point country has met HIPC criteria and as such receives 100% debt reduction available under HIPC.

Is the program purpose clear?

Explanation: Yes, the program purpose is clear. The Enhanced Heavily Indebted Poor Countries (HIPC) initiative was designed to provide substantial debt reduction to low-income countries with unsustainable debts that demonstrate commitment to economic reform and poverty reduction. Objectives of the HIPC program are (1) to lower countries' debt burdens and debt-service payments significantly (2) free up resources to increase spending on poverty reduction, and (3) help achieve debt sustainability and a lasting exit from debt problems. In particular, the debt levels of eligible countries are expected to be lowered to thresholds established under the Initiative: the net present value of debt-to-exports of 150 percent, or the net present value of debt-to-government revenue of 250 percent.

Evidence: H.R. 3425 was incorporated by cross-reference in the conference report to H.R. 3194 [Division B]. H.R. 3194, the FY2000 Consolidated Appropriations bill, became Public Law 106-113 on 11/29/1999. GAO Report/NSIAD-00-161: Developing Countries: Debt Relief Initiative for Poor Countries Faces Challenges. June 2000

Does the program address a specific and existing problem, interest, or need?

Explanation: The program is a comprehensive multilateral approach to address the debt burdens of the poorest countries that do not have the capacity to service their debt obligations. Previous debt reduction programs focused on official bilateral debt relief. Given the growing share of debt owed to multilateral institutions by these countries, the HIPC initiative for the first time includes debt reduction from multilateral financial institutions. The debt problems of poor countries originated in borrower countries' weak macroeconomic policies and debt management, adverse trade shocks, and official creditors' willingness to take risks unacceptable to private lenders. During the 1970s and 1980s, many low-income countries experienced a sharp increase in their external borrowing. In addition to the willingness of official creditors to lend and the debtors to borrow, several other factors contributed to borrower countries' debt burdens. These included adverse shocks in the terms of trade (that is, the prices of their exports fell or the prices of their imports increased); a lack of sustained economic reform by governments; weak debt management practices; and political factors, such as war and social strife. The World Bank reported that, by the early 1980s, interest payments became an increasing burden for indebted countries, and the share of new borrowing used for debt payments increased sharply. By the mid-1980s, the bulk of new loan financing to low-income countries was concessional financing from the multilaterals, particularly in countries where debt-service problems arose and private creditors no longer viewed these countries as creditworthy. Debt relief efforts up until 1996 were undertaken primarily by bilateral and commercial creditors. Although bilateral creditors have reduced debt individually, they most commonly have worked together to offer debt relief on increasingly concessional terms through the Paris Club, an informal group of creditors that meets, as needed, to negotiate debt rescheduling and relief efforts for public or publicly guaranteed loans. In 1996, in response to concerns that, even after receiving debt relief through these efforts, some poor countries still had debt burdens that remained too large relative to their ability to pay, the United States and other G-7 countries called for a more comprehensive approach to debt relief that would include the multilateral financial institutions for the first time. In September 1996, the World Bank and the IMF launched the HIPC Initiative. Under the original initiative, seven countries qualified for debt relief, and four of these countries??Bolivia, Guyana, Mozambique, and Uganda??received full debt relief, as of May 1, 2000. However, while acknowledging that this first initiative was a positive step forward, nongovernmental organizations, some borrower governments, and some creditor governments criticized the original HIPC Initiative as providing too little relief too slowly. The United States and other G-7 countries called for, and the World Bank and IMF launched, the enhanced HIPC initiative in September 1999.

Evidence: GAO Report/NSIAD-00-161: Developing Countries: Debt Relief Initiative for Poor Countries Faces Challenges. June 2000

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: The program is not duplicative of any other U.S. government or multilateral effort. Under the enhanced HIPC initiative, the United States provides 100 percent reduction of U.S. claims contracted before June 1999 for countries that qualify for HIPC reduction. This level of debt reduction goes well beyond other U.S. bilateral debt reduction for poor countries such as "Naples terms" debt reduction, and is limited to those countries whose debt is considered unsustainable even after Naples terms relief. To qualify for HIPC, the country's debt at the time of decision point must be exceed an NPV of debt-to-export ratio of 150%, or NPV of debt-to-revenue ratio of 250% after the full application of "traditional debt relief mechanisms". The term "traditional debt relief mechanisms" refers to a stock-of-debt treatment on Naples terms and comparable relief from non-Paris Club bilateral and commercial creditors. (A Naples treatment entails 67% reduction of eligible non-concessional debt; other debts are rescheduled.)

Evidence: H.R. 3425 was incorporated by cross-reference in the conference report to H.R. 3194 [Division B]. H.R. 3194, the FY2000 Consolidated Appropriations bill, became Public Law 106-113 on 11/29/1999.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The initial HIPC program was modified in 1999/2000 to provide deeper debt reduction for more countries, to allow for faster debt relief depending on country performance, and to encourage increased expenditures related to poverty reduction. Since the enhanced HIPC initiative was launched, there has been substantial progress in the number of countries that have qualified for debt relief, the reduction of debt burdens, and increases in poverty-reducing expenditures. The World Bank 2006 Independent Evaluation Report noted that the Enhanced HIPC Initiative had reduced $19 billion of debt in 18 countries, thereby halving their debt ratios. However, in 2003, in 11 of 13 post-completion-point countries for which data was available, the key indicator of external debt sustainability had deteriorated since completion point. In eight of these countries, the ratios once again exceeded HIPC thresholds. New analyses in 2006 presented a more optimistic outlook for debt sustainability. Six of eight post completion-point countries have only a moderate risk of debt distress. But all remain vulnerable to export shocks and still require highly concessional financing and sound debt management. Debt reduction alone is not a sufficient instrument to affect the multiple drivers of debt sustainability. Sustained improvements in export diversification, fiscal management, the terms of new financing, and public debt management are also needed, measures that fall outside the ambit of the HIPC Initiative. With the implementation of the Multilateral Debt Relief Initiative, and the strengthened focus on debt sustainability post-HIPC and MDRI, the outlook for continued debt sustainability is improved.

Evidence: Debt Relief for the Poorest: A World Bank Operations Evaluations Department Review of the HIPC Initiative: 2003. The World Bank Independent Evaluation Group's Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative: 2006. World Bank and the International Monetary Fund: Heavily Indebted Poorest Countries Initiative - Status of Implementation. August 2006.

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: In order to target beneficiary countries effectively, the HIPC program requires that countries demonstrate a track record of economic reform and a commitment to poverty reduction before starting to receive HIPC debt relief (at the "Decision Point"). HIPC debt reduction is also staged, in order to provide further assurance that only countries that continue to perform satisfactorily receive the final stage of HIPC relief (at the "Completion Point"). To be declared potentially eligible for HIPC, a country must satisfy three conditions: (1) The country must be IDA-only and PRGF eligible; (2) The country's external debt, after the full application of traditional debt relief mechanisms, must have an NPV of debt-to-export ratio greater than 150%, or NPV of debt-to-revenue ratio greater than 250%. (3) The country must have started a qualifying IMF program since October 1, 1996. As a result, no unintended beneficiaries receive program resources.

Evidence: H.R. 3425 was incorporated by cross-reference in the conference report to H.R. 3194 [Division B]. H.R. 3194, the FY2000 Consolidated Appropriations bill, became Public Law 106-113 on 11/29/1999. GAO Report/NSIAD-00-161: Developing Countries: Debt Relief Initiative for Poor Countries Faces Challenges. June 2000

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The program has specific long-term outcome measures that support the program's purpose of substantially reducing the debt burdens of heavily indebted poor countries that qualify for HIPC debt reduction. These include measures that track whether post completion point countries' debt-service payments were lowered significantly, whether their resources have been freed up that will be spent on poverty reduction activities, and whether HIPC debt reduction will help achieve debt sustainability and a lasting exit from debt problems. These measures meaningfully reflect the purpose of the program.

Evidence: PART performance measures section

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The HIPC program has ambitious targets of reducing debt burdens, increasing the percentage of poverty reduction expenditure, and helping achieve debt sustainability and a lasting exit from debt problems. Most targets are set higher than actual experience. Moreover, maintaining levels of debt sustainability after reaching Completion Point is ambitious for many HIPC countries. The program has baselines.

Evidence: PART performance measures section

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: All annual outcome performance measures demonstrate annual progress toward reaching long-term outcome goals. For example, many of the annual measures assess the performance of post Decision Point countries while their affiliated long term outcome measures assess the performance of post Completion Point countries. In the HIPC process, countries reach Decision Point and then Completion Point.

Evidence: PART performance measures

Does the program have baselines and ambitious targets for its annual measures?

Explanation: The program has baselines and challenging, but realistic, quantified targets for the annual measures. For most measures, baselines were set in 1999 before HIPC countries received debt relief.

Evidence: PART performance measures

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: The HIPC program is coordinated through the United States Government and other member country representatives at the World Bank, IMF, and regional multilateral development banks. All stakeholders at these institutions are committed to the goals of substantial debt reduction for countries meeting the HIPC eligibility requirements. For HIPCs that suffered exceptional exogenous shocks between Decision Point and Completion Point, the United States Government and other shareholders of the World Bank and IMF agreed that additional HIPC debt relief, beyond what was agreed upon at Decision Point could be provided in order to reach the HIPC target of 150 percent NPV debt/exports. In order to help maintain debt sustainability following substantial HIPC and Multilateral Debt Relief Initiative debt reduction, the United States Government and its partners have worked for the establishment of, and continued improvements to, the joint World Bank/IMF Debt Sustainability Framework for Low-Income Countries.

Evidence: World Bank and the International Monetary Fund: Heaviy Indebted Poorest Countries Initiative - Status of Implementation August 2006.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: The World Bank's Independent Evaluation Group has conducted two evaluation studies of the HIPC program. The first independent evaluation was published in 2003. Important conclusions of that first report, consistent with United States Government views, included: debt reduction is not a panacea, a broader focus is needed with respect to economic growth, poverty reduction, and debt sustainability; increased grants are important for debt sustainability; countries should not be rushed through the HIPC process at the expense of strong track records on economic performance; export growth projections had been overly optimistic. Following the report the United States Government and others worked to increase grants from the Multilateral Development Banks, and improve debt sustainability analyses including more realistic export growth projections. The most recent evaluation was published in 2006 and is entitled, "Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative." Both evaluations are of high quality and of sufficient scope. These evaluations examine the experience of various HIPC countries and look at a number of indicators to assess performance.

Evidence: Debt Relief for the Poorest: A World Bank Operations Evaluations Department Review of the HIPC Initiative: 2003. The World Bank Independent Evaluation Group's Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative. 2006

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: Budget requests are not explicitly tied to achievement of annual and long-term performance goals, but are tied to the projected timing of HIPC debt reduction financing needs for countries that meet the requirements for HIPC debt reduction. Budget authority is used to make creditor agencies financially sound when their portfolio's debt is written off.

Evidence: Previous budget submissions to OMB. FY 2007 and 2008 Treasury International Programs Justification for Appropriations.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The program was significantly modified in 1999/2000. Since that time, partly in response to independent evaluation reports, adjustments have been made in aspects of the program. In addition, although not part of the HIPC program, other policies have been agreed that complement the HIPC program (e.g., the Administration's push for grants rather than loans from the International Development Association for debt-vulnerable countries; the Administration agreement on a "New Lending Moratorium" that restricts new non-concessional lending from the United States Government to countries that have received United States Government debt reduction). Other examples include the achievement of more realistic IMF/World Bank growth projections for incorporation into debt sustainability analyses, and the emphasis on the importance of wider creditor participation in HIPC debt reduction.

Evidence: International Development Association-14 Replenishment Negotiations

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: Treasury collects, primarily through the joint World Bank/International Monetary Fund (IMF) annual progress report on HIPC implementation, detailed HIPC performance information. Treasury also reviews individual country reports (IMF article IV reviews and program documents, as well as "preliminary HIPC", "Decision Point", and "Completion Point" documents) to monitor HIPC implementation, and to inform interventions by the United States Government with respect to broad HIPC policy issues, country macroeconomic performance, country eligibility for HIPC debt relief, timing of HIPC relief, and other HIPC performance issues. In the past year the USG has used information provided in these reports to press for actions/improvements in HIPC and HIPC-related policy issues such as: (a) Constraining the number of countries that are potentially eligible for HIPC treatment. The USG, via interventions in the World Bank and IMF Executive Boards, successfully worked for the establishment of specific criteria to "ring-fence" countries potentially eligible for HIPC, and not leave HIPC as an open-ended commitment to reduce debts for low-income countries that might at any time in the future accumulate unsustainable debt; (b) Improved creditor participation and improved debt management. As a result of USG and other Executive Board member interventions, the World Bank and IMF are publishing more information on creditors that have not yet participated in HIPC reduction in an effort to bring greater public pressure on them. The World Bank and IMF have prepared a paper for Executive Board review on improving debt management capacity in developing countries; (c) Development of an improved framework for debt sustainability in low-income countries. The USG has been very active in supporting, and pressing for improvements in, the joint IMF/World Bank Debt Sustainability Framework. Substantial improvements have been made in the framework, which aims to prevent buildup of unsustainable debt in the low-income countries, particularly for the HIPCs in the wake of HIPC and MDRI debt relief.

Evidence: World Bank/IMF annual progress reports on the "status of implementation." Individual country reports are published every 3-5 months and HIPC policy documents are published as needed (e.g., on topping up policy, on the HIPC "sunset" policy, on HIPC-related issues such as the Low-Income Debt Sustainability Framework).

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Beneficiary countries are held accountable for performance. Unless there is sufficient demonstrated commitment to economic reform and poverty reduction, HIPC Decision Point will not be reached. Debt relief between Decision Point and Completion Point can be, and has been in some cases, suspended if a country falls off-track on its IMF program. The international financial institutions, the primary implementers of the overall HIPC program, are held accountable to the USG and other shareholders, who closely monitor and make decisions with respect to HIPC policy and implementation.

Evidence: World Bank/IMF annual progress reports on the "status of implementation."

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: Treasury obligates funds once the Paris Club Agreed Minute is signed at the time of the HIPC Decision Point. Debt reduction is provided in accordance with the Agreed Minute and the USG bilateral agreement that implements the Agreed Minute. Creditor agencies report debt reduction to the Foreign Credit Reporting System.

Evidence: Foreign Credit Reporting System; SF 133s for debt reduction program, financing, and liquidating accounts.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation:

Evidence: PART Performance Measures

Does the program collaborate and coordinate effectively with related programs?

Explanation: Implementation of the HIPC program is linked to United States Government participation in the Paris Club of creditor governments. United States Government bilateral debt reduction for HIPCs occurs in the context of Paris Club agreements which follow decisions by the Executive Boards of the IMF and World Bank with respect to country eligibility for HIPC Decision Point and Completion Point treatment. The HIPC program is also linked to broader United States Government goals with respect to debt sustainability, such as the grants programs for debt-vulnerable countries in the MDBs, the United States Government New Lending Moratorium, and the work to develop an IMF/World Bank Debt Sustainability Framework for Low-Income Countries. With respect to debt sustainability, Treasury was successful in collaborating with OMB and USG creditor agencies to establish the United States Government New Lending Moratorium, which restricts United States Government non-concessional lending for a period of at least one-year for countries that have received United States Government debt reduction. Treasury has also worked for the establishment of, and significant improvements to, the World Bank/IMF Debt Sustainability Framework. Among recent improvements has been the incorporation of stress tests with more conservative projections of GDP and export growth.

Evidence: World Bank/IMF annual progress reports on the "status of implementation."

Does the program use strong financial management practices?

Explanation: Treasury has worked extensively to improve the accuracy of the Foreign Credit Reporting System data. Agencies report quarterly to the Foreign Credit Reporting System. Foreign Credit Reporting System data reflects stages of debt reduction that have been carried out in accordance with USG bilateral agreements. Treasury uses OMB's credit subsidy calculator in calculating the cost of debt reduction. Cash flows being treated are verified by the United States Government creditor agencies.

Evidence: Foreign Credit Reporting System

Has the program taken meaningful steps to address its management deficiencies?

Explanation: The Enhanced HIPC program has been regularly reviewed over the years, in the context of IMF/World Bank Executive Board reviews, reviews by the Development Committee and the IMFC, and reviews by G7 and G8 groups. The program has also been reviewed by the World Bank's Independent Evaluation Group and the GAO. Based on these reviews the program has been modified over the years to improve the efficiency of implementation. Treasury has the lead role in the United States Government for providing guidance and instructions to the U.S. Executive Directors at the IMF and World Bank, and for preparing USG positions for the Development Committee, IMFC, and for the G7/8 on economic and financial issues. Through these channels the United States Government has achieved enhanced coordination on HIPC among the multilateral financial institutions, more conservative (and realistic) projections for HIPCs' export growth in the context of debt sustainability assessments, the institution of additional "topping up" debt reduction for countries that have faced exogenous shocks, and more flexibility in macroeconomic performance requirements for countries emerging from conflict. Treasury has also worked to increase the timeliness and accuracy of debt data reporting by United States Government creditor agencies to the Foreign Credit Reporting System.

Evidence: Foreign Credit Reporting System, G7/8 communiqu??s, Development Committee and IMFC communiqu??s and statements.

Is the program managed on an ongoing basis to assure credit quality remains sound, collections and disbursements are timely, and reporting requirements are fulfilled?

Explanation: The program is not managed on an ongoing basis to assure that disbursements are timely. Once the United States Government signs the Paris Club minute, Treasury obligates subsidy in the program account. The credit agency then sends Treasury a 1081 to outlay the subsidy from the program account to the creditor agency debt reduction financing account. However, this subsidy sits in the creditor agency financing account before the actual debt reduction action takes place. This is complicated with staged debt reduction in which funds that should not be outlaid at the signing of the Paris Club meeting are outlaid to creditor agencies' debt reduction financing account. Upon receiving this subsidy, the creditor agency should purchase the loan that is being written off from the liquidating account. This should take place at the time of the first debt reduction action. However, creditor agencies have reported that this in fact does not occur.

Evidence: SF-133 for debt reduction program, financing, and liquidating accounts

Do the program's credit models adequately provide reliable, consistent, accurate and transparent estimates of costs and the risk to the Government?

Explanation: Treasury uses OMB's credit subsidy calculator to calculate United States Government debt reduction costs, with verification by OMB. The scheduled repayment flows being forgiven are verified by the United States Government creditor agencies.

Evidence: OMB's credit subsidy calculator

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: The program has made progress on at least two of its long-term performance goals. Debt service-to-export ratios have declined substantially and debt sustainability as measured by the percentage of Completion Point countries with debt ratios above sustainability thresholds as of the end of 2006 (zero percent). Progress toward actual poverty reduction, and any causality, is difficult to measure at this time.

Evidence: Performance Measures. World Bank and the International Monetary Fund: Heavily Indebted Poorest Countries Initiative - Status of Implementation August 2006.

Does the program (including program partners) achieve its annual performance goals?

Explanation: While the program is making progress towards its long-term performance goals, 2007 was the first year in which annual performance goals were actually set.

Evidence: PART performance measures

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: The program does not have an efficiency measure

Evidence: PART performance measure

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The performance of the HIPC program compares favorably to previous debt reduction efforts for heavily indebted poor countries. Until the late 1980s, the Paris Club of bilateral official creditors only provided reschedulings of poor countries' debts. This provided some temporary relief but did not reduce the stock of debt. Through a series of increasingly generous partial debt reduction programs, by 1994 Paris Club creditors were providing 67 percent reduction of eligible official bilateral non-concessional debts via "Naples terms" treatments. However, such treatments only rescheduled concessional debts and the remaining 33 percent of non-concessional debt. Moreover, for most of these countries debt owed to the multilateral financial institutions had become their major burden. The enhanced HIPC initiative for the first time included debt reduction from the multilateral financial institutions. The HIPC program represents a major step forward in its comprehensive approach to debt relief, tied to demonstrated commitment to economic reform and poverty reduction.

Evidence: World Bank/IMF annual progress reports on the "status of implementation."

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: Since the enhanced HIPC initiative was launched, there has been substantial progress in the number of countries that have qualified for debt relief, the reduction of debt burdens, and increases in poverty-reducing expenditures. As reported in the World Bank's 2006 Independent Evaluation of the HIPC Program, the Enhanced HIPC Initiative had reduced $19 billion of debt in 18 countries, thereby halving their debt ratios. But in 11 of 13 post-completion-point countries, for which data are available, the key indicator of external debt sustainability had deteriorated since completion point. In eight of these countries, the ratios once again exceeded HIPC thresholds. New analyses present a more optimistic outlook for debt sustainability. Six of eight post completion-point countries have only a moderate risk of debt distress. But all remain vulnerable to export shocks and still require highly concessional financing and sound debt management. Debt reduction alone is not a sufficient instrument to affect the multiple drivers of debt sustainability. Sustained improvements in export diversification, fiscal management, the terms of new financing, and public debt management are also needed, measures that fall outside the ambit of the HIPC Initiative.

Evidence: The World Bank Independent Evaluation Group's Debt Relief for the Poorest: An Evaluation Update of the HIPC Initiative. 2006