Poor countries' goal is to reduce debt, fight poverty, and achieve durable growth

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The IMF plays a central role, through its policy guidance and financial support, in helping member countries cope with external debt problems. The IMF's ultimate objective is to ensure that debtor countries achieve sustainable growth and balance of payments viability and establish normal relations with creditors, including gaining access to international financial markets. The basic elements of the IMF's debt strategy have remained the same, even though the instruments it uses have evolved over time:

* promote growth-oriented adjustment and structural reform in debtor countries,

* maintain a favorable global economic environment, and

* ensure adequate financial support from official (bilateral and multilateral) and private sources.

Paris Club

Debtor countries seeking to reschedule their official bilateral debt typically approach the Paris Club-an informal group of creditor governments, mainly those of the Organization for Economic Cooperation and Development.Under such agreements, debtor countries generally reschedule their arrears and the current maturities of eligible debt service, with repayment stretching over many years. To ensure that such relief helps countries restore balance of payments viability and achieve sustainable economic growth, the Paris Club links debt relief to the formulation of an economic program supported by the IMF. In deciding on the coverage and terms of individual rescheduling agreements, Paris Club creditors also draw on the IMF's analysis and assessment of countries' balance of payments and debt situations.

Over the past two decades, rescheduling has helped some distressed middle-income countries return to financial stability. For low-income countries, the Paris Club began not only to reschedule, but also to reduce, their debts in the late 1980s.

New approach needed

Although the terms for Paris Club reschedulings became increasingly concessional over the years to bring more lasting relief, many poor countries did not grow as rapidly as had been hoped and their debt remained high. For these low-income, heavily indebted countries, creditors recognized the need for a new approach.

Launched in 1996, the original Heavily Indebted Poor Countries (HIPC) Initiative marked the first time that multilateral, Paris Club, and other official...