The Heavily In-debt Poor Countries (HIPC) initiative set up in 1996 by the rich nations through the IMF and World Bank calls for the reduction of external debt through write-offs by official donors. It was set up for the poorest of nations, for whom, according to the World Bank, the debt of the HIPC countries was, on average, more than four times their annual export earnings, and 120 percent of GNP. But the HIPC initiative has been met with a lot of criticism for not actually helping the countries it is supposed to be helping (the indebted nations) while helping those it wasn't necessarily meant to (the rich nations). “The most glaring problem with the Heavily Indebted Poor Country (HIPC) initiative for debt relief is that it will not provide lasting relief from debt for the highly indebted countries of the south. The HIPC process is aimed not at canceling debts, but at ensuring that they can be repaid. It has little to do with enhancing human development, reducing poverty, or even increasing economic growth in the debtor countries. Rather, it is designed to massage debt figures down to a level where they would be deemed sustainable again according to the criteria of the International Monetary Fund (IMF).”
The HIPC policy has long been criticized by many organizations for not actually amounting to much relief in real terms due to it being tied to certain conditionalities that are recommended by the IMF and World Bank, which prescribed the problems of the poorer countries in the first place. The IMF and World Bank themselves have come out with a report saying such things, as reported by the Drop the Debt campaign.
The European Network on Debt and Development, for example, point out in a report that the HIPC is unlikely to free up resources to tackle poverty for three main reasons:
Threshold levels to measure debt sustainability are arbitrary and still too high and that sustainability is defined in economic terms and not in terms of human and social development. As a result, they point out, several least developed countries with significant debt burdens have not been included in the HIPC initiative.
The debt reduction on offer is too small. They point out, for example, that Zambia and Niger will actually pay more after the initiative than they did before.
Furthermore, the World Bank has been criticized by Oxfam in a report, for having used wildly optimistic growth projections for the 22 HIPC countries. The ramification of this as they continue is that because projections are linked to growth, revenues have been overestimated, and debt is likely to absorb much larger shares of government revenue than World Bank projections state meaning that in many cases nations will continue to spend more on debt than on basic education or health, even after receiving HIPC debt relief.
To conclude Even Joseph Stiglitz, the World Bank's Chief Economist and Vice President, in January, 1998 called their structural adjustment HIPC initiative misguided, calling for a more humble approach to macro-economics and a commitment to honor promises made in social sectors. People have become disgruntled at the initiative claiming that the program is more in the interests of the creditors than the debtors.
And at the end of 1999, Joesph Stiglitz stepped down as the former Chief Economist of the World Bank renewing his previous criticisms of the World Bank and IMF saying that it was not open and transparent enough, especially to additional viewpoints and the positions of the developing countries. In his own words, The policy of imposing conditions on countries seeking economic aid had failed.