FROM THE OFFICE OF PUBLIC AFFAIRS

POVERTY REDUCTION STRATEGY PAPERS AND THE HIPC INITIATIVE

Last year, we recognized the importance of enhancements to the HIPC Initiative to provide faster, deeper, and broader debt relief for countries truly committed to poverty reduction and growth. We also agreed on a new framework for concessional loans, linking them to country-driven national poverty reduction and economic growth strategies. The staff and management of the IMF and World Bank have worked hard to translate these agreements into concrete actions, and a number of participating countries have made impressive efforts to implement their responsibilities under the new framework. We recognize and very much appreciate these efforts.

These reforms have been instrumental in addressing our shared desire to see as many countries as possible take the steps needed to reach decision points this year. We have seen substantial progress in this regard and we hope and expect that 20 countries will qualify under the initiative by the end of the year on the basis of credible commitments to growth and poverty reduction. As we proceed, however, we need to ensure that we adhere to requirements that will promote real, discernible poverty reduction, more rapid growth, and a durable exit from unsustainable debt. The true measure of HIPC's success will not simply be the amount of relief provided, but how those resources are used, and whether the reforms that accompany HIPC are able to deliver durable poverty reduction and growth. With this objective in mind, I would underline the need for improvement on four critical points going forward.

The inevitable tension between the speed at which relief is provided and the desire for relief to have maximum impact will continue to be a major concern in the implementation of the enhanced HIPC initiative. There can be no excuse for unnecessary delay, but nor can there be an excuse for allowing these crucial resources to be wasted. As we shift from the strongest performers to more complex cases, it becomes increasingly important to define clear standards for striking the right balance so that countries qualify for relief as rapidly as possible and effective safeguards are in place.

One of the most pressing gaps relates to the planned use of savings generated by interim relief and the need for improving tracking systems. More systematic and transparent reporting on the level of expected HIPC savings throughout the process, clear plans on what the authorities plan to do with these resources, and the establishment at the decision point of systems to track these commitments -- such as we saw in Uganda -- should be standard to HIPC documentation and HIPC support.

I-PRSPs must also give more explicit attention to the country's plans to involve the public in the development of the full PRSP. Timely publication of, and public access to, PRSPs, HIPC, and IFI program documentation will go a long way to support these efforts. In this light, we welcome the recently approved policy that staff will not recommend Board endorsement of an I-PRSP and PRSP without prior publication.

HIPC debt relief will do little to reduce poverty in the absence of a stable macroeconomic environment and a comprehensive poverty-focussed growth and development strategy. This underscores the importance of maintaining a credible standard for the establishment of a track record under PRGF/IDA assistance, especially for the most difficult and highest risk cases. We must carefully consider the impact that measures primarily aimed at speeding up the process have on each country's overall prospects for robust growth, enduring poverty reduction and debt sustainability. When there has been an interruption in Bank/Fund programs, we should avoid any compression that precludes credible assessment of performance against formal program criteria immediately prior to the decision point.

It is essential that the conditions required to successfully reach completion points are transparent, reflect country circumstances, and are ambitious, but also achievable. We are pleased that the Fund and Bank increasingly recognize the need to ensure that these conditions reflect strategic consideration of the key impediments to poverty reduction and growth and that the Bank intends to develop mechanisms to allow it to monitor progress in a more systematic way.

2. Establishing core elements of a national poverty strategy.

The PRSP framework holds out the promise of a substantial shift in the way the IMF and the World Bank engage with their poorest members. The essential objective, to embed IMF and World Bank operations in a strategic country-driven agenda for growth and poverty reduction, is compelling in its logic. But its implementation is complex, and we are still at the early stages in translating this objective into reality.

The experience of the last year shows that the Poverty Reduction Strategy Paper process has, in a number of countries, advanced a more systematic approach to the development of national poverty reduction goals and strategies, with greater openness and transparency. At the same time, we've seen a need for greater clarity with regard to the core content of a PRSP necessary to deliver sustainable results and we are very pleased that the Bank and Fund plan to better focus on core content for PRSPs. Such clarity will help HIPC governments, civil society and other development partners to better understand the expectations of the IFIs and should lead to more comprehensive, better targeted, and more credible PRSPs. In our view, essential elements of a PRSP include:

• Actions to achieve more rapid, job-creating growth, notably in agriculture, that will create income opportunities for the poor.
• A re-alignment of public expenditures, targeted to support poverty reduction actions, and stronger systems to track expenditures and measure their impact on poverty reduction.
• Focus on expanding access and improving the quality of basic education and basic health care, with particular emphasis on HIV/AIDS prevention.
• Actions to improve governance, transparency, and accountability.
• A process for engagement of a broad spectrum of civil society in developing the PRSP and monitoring and tracking progress in implementing the strategy.

3. Committing to a strong framework for maintaining to ensure debt sustainability.

A principle objective of the HIPC initiative is to enhance prospects for sustainable debt positions. To achieve this goal, there is need for a more fully articulated framework for assessing debt sustainability and its implications for the scale and composition of new lending to HIPCs. This will require, for example, more rigorous and realistic staff assessments of countries' borrowing capacity, including vulnerability analyses. It should also involve clearer constraints on new public sector borrowing overall, and non-concessional lending in particular, for a period following debt relief, and greater recourse to grant financing where appropriate.

In this context, the U.S. is committed to pursuing options for greater differentiation in IDA's lending terms, including the use of grants for HIPC countries in the IDA-13 replenishment negotiations. A combination of constraints on new borrowing, increased grant finance and greater selectivity to ensure resources go to countries best equipped to use them effectively will serve all stakeholders well.

While PRSPs must be country-owned, the IFIs have an important supportive role in assisting countries in the formulation of these strategies. As a priority, staff should help countries to evaluate the lessons of past and current policies, avoid a laundry list approach, move to a more strategic framework to define, prioritize, and implement fully costed poverty programs, and analyze the tradeoffs of alternative policy courses. In this regard, we welcome the commitment of the IFIs to assist countries in more systematic use of ex-ante analysis of the expected poverty reduction impact of such policies. As the process moves forward, we expect the Country Assistance Strategies (CAS), the new PRSCs, and PRGFs to articulate how these programs will reflect the priorities and strategies contained in the PRSP.

The Role of the World Bank: We believe the Bank should take the lead in setting the priority social and structural conditions to operationalize the new development framework set out in a borrower's PRSP (or I-PRSP). We therefore support the development of the Poverty Reduction Support Credit (PRSC) as the Bank's parallel instrument to the Fund's PRGF that would set out and be based on the priority social and structural conditions that are now often embodied in the PRGF. The PRSC should be the principal device for coordination of policy and consolidation of fast-disbursing lending instruments. In this respect, it should not be additional to the currently programmed level of adjustment lending nor result, by itself, in a shift in the mix of Bank operations in favor of a greater share to budget support. Moreover, such an instrument must be used selectively and with appropriate safeguards. Our Development Committee statement contains more details on what we consider an appropriate framework for the PRSC.

The Role of the Fund: We are at an early stage in the transition from ESAF to the PRGF, and there is a great deal of work to be done to ensure that the PRGF's sharper focus on growth and poverty reduction, according to priorities outlined in PRSPs, is reflected in program design - specifically, in the pace, content and sequencing of reforms. Similarly, we expect to see a streamlining of structural conditionality. We need to see more explicit discussion of these issues in program documents with specific examples so as to more clearly demarcate the shift from ESAF to PRGF. We are convinced that a stronger effort to document operational and programmatic changes will reinforce the intended new focus of the PRGF and help ensure that the public better understands and fully appreciates it.

The United States has strongly supported and will continue to support the ambitious reforms necessary to enhance the IMF's and World Bank's capacity to support country-led growth and poverty reduction efforts by their poorest members. We believe HIPC is a vital part of this agenda and President Clinton and I continue to actively seek Congressional support for the U.S. contribution to this initiative. We are requesting a total of $435 million in appropriations for HIPC debt relief through FY2001, including $75 million for our bilateral costs and $360 million for the HIPC Trust Fund (as the first part of our $600 million commitment to the Fund). We are also actively seeking Congressional authorization of US support for use of the remaining 5/14 of investment income on profits from the IMF off-market gold sales for debt relief.