Sustainable development requires ... heavily indebted poor countries.

• Position: Includes related article on heavily indebted poor countries

A major step towards addressing the debt problems of the poorest countries in a comprehensive way was taken by the World Bank and the International Monetary Fund (IMF) with the endorsement by the international community of the initiative in favour of the heavily indebted poor countries (HIPCs). This initiative is based on the premise that "sustainable development requires sustainable debt". It represents a commitment to reduce to sustainable levels the debt burden of an eligible country that has successfully completed a period of strong policy performance. A total of 29 least developed countries (LDCs) are included in the group of 48 countries that have been identified as HIPCs.

During the first stage of implementation of the HIPC initiative, debtor countries are required to establish a first three-year track record of good performance under IMF-monitored economic programmes, so-called "Paris Club creditors" agreeing to a flow rescheduling on current Naples terms during this period and other bilateral and commercial creditors providing at least comparable treatment. (Since December 1994, the Paris Club has applied Naples terms to the rescheduling of bilateral official debt of the poor and HIPC countries. Those terms offer a reduction of up to 67 per cent of the present value of their debt.)

At the end of the first stage, debtor countries will reach the "decision point". By that time, if a Paris Club stock-of-debt operation under Naples terms is sufficient for achieving a sustainable external debt situation in three more years, the country concerned can request an exit stock reduction from the Paris Club. If debt sustainability analysis shows that such an operation would not be sufficient, the country may become eligible for HIPC assistance. It would need in principle to establish another three-year track record of good performance before reaching the "completion point". In the interim period, the Paris Club would be expected to provide more concessional debt reduction, up to 80 per cent in net present value terms; similar treatment would be requested from other bilateral and commercial creditors; and donor countries and multilateral institutions should also provide enhanced support. The World Bank would provide International Development Association (IDA) grants and supplemental HIPC IDA allocations during this second stage. Multilateral debt relief proper would be extended only at "completion point", again provided that the debtor country...