This is the accessible text file for GAO report number GAO-03-215R entitled 'Benefits and Costs of the Debt Relief Enhancement Act of 2002' which was released on October 11, 2002. This text file was formatted by the U.S. General Accounting Office (GAO) to be accessible to users with visual impairments, as part of a longer term project to improve GAO products’ accessibility. Every attempt has been made to maintain the structural and data integrity of the original printed product. Accessibility features, such as text descriptions of tables, consecutively numbered footnotes placed at the end of the file, and the text of agency comment letters, are provided but may not exactly duplicate the presentation or format of the printed version. The portable document format (PDF) file is an exact electronic replica of the printed version. We welcome your feedback. Please E-mail your comments regarding the contents or accessibility features of this document to Webmaster@gao.gov. October 11, 2002: The Honorable Joseph R. Biden: United States Senate: The Honorable Rick Santorum: United States Senate: Subject: Benefits and Costs of the Debt Relief Enhancement Act of 2002: Despite years of effort to provide debt relief to the world’s poorest countries, these countries’ debt problems still have not been resolved[Footnote 1] In summary, we found that the Debt Relief Enhancement Act would immediately lower the debt service of countries that qualify for relief. It would cost about $2.7 billion (present value) for 26 countries over the next 3 years and have no effect on long-term debt sustainability. If applied over a 20-year period, the act’s provisions would address the long-term debt sustainability of these countries. However, the cost of the proposal would grow to between $7 billion and $12 billion (present value) for those 26 countries. An alternative debt relief proposal, promoted by the Bush administration, is to convert up to 50 percent of future multilateral concessional loans to grants.[Footnote 2] This proposal does not address the short-term debt service obligations of these countries. However, it substantially improves their prospects of achieving long-term debt sustainability. We estimate that the cost of implementing this proposal by the World Bank would be about $9.7 billion (present value) over 40 years and would lower the debt burdens of all 65 countries that are eligible to borrow only from the World Bank’s concessional resources. In reviewing the cost of the Debt Relief Enhancement Act, we focused on the 26 countries in the Heavily Indebted Poor Countries Initiative that have qualified for debt relief as of July 2002. The primary data for our analysis were the World Bank’s and the International Monetary Fund’s (IMF) country-specific economic forecasts and debt service projections for these 26 countries. Specifically, we compared the annual debt service that the countries would pay if the act’s provisions were implemented with their projected debt service if the act were not implemented. We conducted this analysis for two time periods: the 3 years covered by the act and the 20 years covering the repayment period of more than 80 percent of the countries’ existing debt stock. The cost of converting 50 percent of multilateral loans to grants was based on our prior analysis of that proposal, which calculated a 40-year cost horizon for the countries that are eligible to borrow concessional resources from the World Bank. The 40-year cost horizon is consistent with the time period covered by the World Bank’s analysis. We performed our work from August 2002 through September 2002 in accordance with generally accepted government auditing standards. We are sending copies of this report to appropriate congressional committees and to the Honorable Paul O’Neill, Secretary of the Treasury. We are also sending copies to the World Bank and the IMF. Copies will be made available to others on request. In addition, this report will be available at no charge on our Web site at http:// www.gao.gov. If you or your staff have questions about this report, please contact me at (202) 512-8979. Thomas Melito, Anthony Moran, Bruce Kutnick, R.G. Steinman, Ming Chen, Stephanie Robinson, and Janey Cohen made key contributions to this report. Sincerely yours, Joseph A. Christoff: Director, International Affairs and Trade: Signed by Joseph A. Christoff: Enclosure: [See PDF for image] [End of section] FOOTNOTES: [1] Qualified countries are those that are eligible to receive debt relief under the Heavily Indebted Poor Countries Initiative. Countries are eligible if existing means are not enough to make debt levels sustainable and creditors are willing to finance the additional relief. In making this determination, the World Bank decides whether (in most cases) the ratio of a country’s debt (in present value terms) to the value of its exports is more than 150 percent. [2] See U.S. General Accounting Office, Developing Countries: Switching Some Multilateral Loans to Grants Lessens Poor Country Debt Burdens, GAO-02-593 (Washington, D.C.: Apr. 19, 2002).