The HIPC Controversy
The Heavily Indebted Poor Countries Initiative, (HIPC), operated by the World Bank and the International Monetary Fund, (IMF), was established in 1966 to offer debt relief and low interest loans to countries that qualified for the programme so that they could reduce their external debt to sustainable levels. It was felt that no poor country should face a debt burden that it could not handle.
Although over forty countries were identified as potential participants in the scheme, only about three quarters have so far benefited from it – mainly drawn from Sub-Saharan Africa. (Only one country – Guyana in South America – has been declared as no longer “Heavily Indebted” and left the programme.)
To qualify for debt relief, countries must meet certain criteria, commit to poverty reduction through policy changes, and demonstrate a good track record over time. International financial institutions such as the IMF and the World Bank provide interim debt relief in the initial stage, and when a country meets its commitments, full debt relief is provided.
Kyrgyzstan has a large external debt – and one that seems to be constantly growing – which is one of the criteria for participation in HIPC. Several measures have been undertaken to help manage and reduce this debt. There have been several examples of debt restructuring, both on a bilateral and a multi-lateral basis. One Kyrgyz politician even suggested establishing a special fund for reducing the debt and asking the people to donate to it – citing a similar wartime fund in which the citizens donated cash, gold earrings and other valuable to help meet the cost of fighting the war.
It was suggested that the Kyrgyz Republic could enter the programme – it is a member of the International Monetary Fund, (IMF) and the World Bank and so it is eligible to draw down funds from these two institution’s special funds, it has a high external debt a record of reform and policy development including a poverty reduction strategy, and government funds released from servicing external debt should be channeled into poverty reduction programmes.
The suggestion, however, was not universally well received.
Although some commentators claimed that the country could only “gain” by having large amounts of debt effectively “written off”, in return for implementing sound policy decisions in areas such reduction and combating corruption, many people felt that this meant handing over financial policy to international organizations.
Furthermore, it was felt that joining such a programme was an insult to the standing of the country – labeling it as a “highly indebted” poor country – this which was once a constituent republic of a global superpower.
Some economists considered that to join the programme would affect the country’s “credit rating” and make it more difficult to receive credit in the future.
Also, the HIPC scheme is not without its critics. For example: privatization of utilities, one of the measures promoted by the programme, can raise the cost of services beyond the ability of ordinary people to pay – which was a particularly important point in Kyrgyzstan where utilities are, historically, highly subsidized.
The debate about whether the country should participate in the programme, or not, was hotly contested. Television programmes debated the finer points of both sides of the argument – but those opposed to HIPC had the loudest voices and organized a number of street protests to press their point. Any meeting that considered the topic on its agenda was picketted. Emotions ran almost as high as in the days before the Tulip Revolution of March, 2005.
The decision to participate, or not, in the HIPC programme was seen as an internal decision for the Kyrgyz government. As far as the international organizations were concerned, Kyrgyzstan was eligible to participate in the scheme, the offer was “on the table” and it was up to the Kyrgyz Government if it wished to avail itself of the offer.
As it turned out, they decided not to take up the offer.
Bishkek