Response to the Jubilee Debt Campaign "Cut the Strings" conditions attached to debt relief

July 2006

Significant progress has been made on debt cancellation. The new Multilateral Debt Relief Initiative (MDRI) proposed by the G8 will provide over $50 billion of debt relief for Heavily Indebted Poor Countries (HIPCs), and its agreement was one of the major achievements of the Gleneagles summit. Since then the Boards of Directors of the World Bank, International Monetary Fund (IMF) and the African Development Fund (AfDF) have agreed the MDRI.

The IMF has now written off 100% of 21 poor countries’ debt stock and similar debt cancellation for 19 HIPC countries was recently implemented at the concessional lending arm of the World Bank (the International Development Association - IDA). We expect further debt cancellation for concessional loans for 15 African countries of the African Development Fund (AfDF) shortly. Up to 43 HIPC countries could benefit from debt stock cancellation under the MDRI. All poor countries will also benefit from the increased donor resources going into IDA and AfDF to compensate for the foregone debt flows, as these will be shared amongst them all, not just the HIPCs.

The UK Government recognises concerns about the use of conditions attached to debt relief and aid, including assistance provided by the World Bank and IMF. There have been improvements in the use of conditionality in recent years, but more can be done. We continue to press both the World Bank and IMF to improve further and in particular to ensure that all conditions reflect nationally agreed plans for poverty reduction and are not imposed.

There are no new policy conditions attached to the MDRI. When countries complete the HIPC Initiative, they will receive 100% irrevocable cancellation of their debts owed to the IMF, World Bank and African Development Bank. The 19 countries that had already completed the HIPC Initiative have had to demonstrate that they have maintained their commitment to poverty reduction and good financial management in order to benefit. All have been able to do so.

In addition to this internationally agreed debt relief initiative, the UK continues (unilaterally) to offer assistance to other poor countries with their debt payments. Under this initiative the UK pays 10% (our share) of qualifying countries’ debt service to the World Bank (IDA) and the African Development Fund (AfDF). Six non-HIPC countries currently receive this support. More countries will benefit once they are able to demonstrate good financial management.

Hilary Benn
Secretary of State for International Development

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