Coming to Terms with Reality. Evaluation of the Belgian Debt Relief ...

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International debt relief initiatives and their effects
buy-back operations. In the future, additional support is also expected to come from the
African Legal Support Facility (ALSF), set up by the African Development Bank mid-
2009 to provide technical assistance to and build legal capacity in African HIPCs facing
debt recovery lawsuits (see African Development Bank, 2010).
Finally, it is important to note that while providing debt relief is one thing, avoiding a fresh
build-up of unsustainable debt in the future is another. In view of its mandate of
surveillance (Article IV) the IMF has conducted debt sustainability analyses (DSAs) of
countries’ public and external debt in a systematic and formal manner since 2002. In April
2005 the Executive Boards of the IMF and the World Bank adopted the joint Debt
Sustainability Framework (DSF) for low-income countries, aimed at matching those
countries’ need for financing with their current and prospective capacity to service debt.
Under the DSF, baseline debt ratios as well as alternative scenarios (testing the impact of
possible shocks) are calculated (see IMF, 2010d). Another novel initiative has been the
provision of special debt management assistance to low-income countries since the
establishment of the Debt Management Facility (DMF) by the World Bank in November
2008. This DMF is a multi-donor grant facility which seeks to improve the debt
management capacity of IDA-eligible countries by offering tools (in cooperation with the
IMF) and training for developing and implementing a medium-term debt management
strategy (MTDS) and reform plans (see World Bank and IMF, 2009).
2.2.2 Characterising international debt relief initiatives from an aid modality
equivalence perspective
2.2.2.1 Characterising through conditionality: a chameleon called debt relief
In this section, we look at the different debt relief initiatives briefly described in the
previous section from a more analytical perspective. More precisely, we first describe the
particular conditionality sets that were attached to the particular debt relief initiatives; in
that way, as highlighted in the logframe of this evaluation (of Chapter 1) we describe the
policy dialogue/conditionality input of the different debt relief initiatives. Furthermore, we
describe to what extent these initiatives were both policy- as well as system-aligned with
the recipient country 18 , providing information that will enable us to judge later to what extent
debt relief could be labelled as coherent with the prevailing aid paradigms, and, more
recently, with the NAA in particular. Together, both issues enable us to compare particular
debt relief interventions with other aid modalities. In fact, we will show that debt relief has
something of a chameleon, changing colours depending on the type of conditionalities and
extent of alignment attached. In characterising the current set of debt relief initiatives, we
(again) distinguish between four ‘generations’, being pre-HIPC (largely Paris Club) relief,
HIPC relief, HIPC+ relief (additional bilateral HIPC relief and MDRI), and the targeting of
non-HIPC eligible countries/debt titles, mainly through (second generation) debt swaps.
Table 2.2 below provides a detailed overview of the issues.
18 ‘Policy alignment’ refers to the donors/creditors committing themselves to base their overall support on
developing countries’ national development strategies, and ‘system alignment’, refers to them using a
recipient country’s own institutions and systems for implementation, monitoring and evaluation where
such institutions and systems are deemed reliable, effective and accountable (see e.g. OECD-DAC 2005
and 2008).
Coming to Terms with Reality
Conditionality is an essential ingredient of an aid intervention, distinguishing it from other
hard-currency recipient country resources such as, say, those coming from oil (or other
exports), as it reduces the policy space to use those resources freely; by using
conditionality, donors want to influence, in a direct way, the utilisation of funds (so-called
earmarking), or, more indirectly, try to change recipient country behaviour in a broad way,
both ex ante (incite good behaviour), or ex-post (rewarding good behaviour) 19 . This is not
different with aid interventions of a debt relief kind. But conditionalities used have evolved
over time.
Pre-HIPC (largely Paris Club) flow as well as debt stock relief essentially only relied on
countries having an active IMF programme; no particular development-earmarking was
included. As such, in fact, this type of debt relief intervention can essentially being
characterised as similar to balance of payments support granted by say the IMF, in the
context of a Structural Adjustment Programme (SAP) 20 . With respect to swaps, such IMF
program conditionality was no absolute conditionality, but there was very strict microearmarking
21 of the funds released through the debt swap, and, as such, in fact, is very
similar to (old-style) project aid. What can we conclude: although intuitively, we think that
debt relief inherently looks very much like budget support, since it is freeing up (also fiscal)
resources, the conditionalities attached make pre-HIPC initiative debt relief look very much
like the then-dominant aid modalities, i.e. support for Structural Adjustment, and project aid.
In fact, in the absence of a clear link to a development/poverty reduction agenda, this
remains largely the case with the original HIPC Initiative, still looking very much like
structural adjustment support. This has changed under the enhanced HIPC-initiative, where
standard IMF conditionality is enhanced with the link to a recipient country-owned
National Development Strategy in general, and the PRSP in particular. It is policy-aligned,
and in principle non-earmarked 22 .
19 The basic idea to characterise freely usable resources as oil and compare them to types of aid is in Collier
(2006).
20 In fact, the debt relief granted in this way was largely the accounting-wise offsetting entry for the debt
service arrears that the recipient country had been accumulating before the debt restructuring operation.
Both in the BoP and the budget, arrears are characterised as a source of ‘exceptional’ finance (registered
‘below the line’), similar to IMF financing.
21 Micro-earmarking refers to the desire of the donor to micro-determine and monitor the use of the funds.
Typically, funds are placed in jointly-managed counterpart funds, usually outside the government budget,
using non-aligned (separate) implementation and monitoring mechanisms, bypassing the government’s
public system. This practice can be considered part of the ‘old’ project logic, with its attached inherent
strengths, such as high donor commitment, ease of monitoring and effectiveness evaluation (both ex ante
as well as ex post), and high degree of donor accountability towards home constituencies, but also with its
well-known weaknesses, such as fungibility, high transaction costs, lack of long-term capacity building and
strengthening of the public management and monitoring and evaluation system, and weak ownership and
sustainability.
22 Non-earmarked debt relief refers to debt relief that is not tied to specific predetermined activities. It is
so-to-say ‘deliberately fungible’, where funds from debt relief are pooled with the budget, to be spent on
the government’s priorities as put forward in national development plans such as for example the PRSP, a
MDG plan, etc. We prefer to label them as non-earmarked use, highlighting the essence of (full) alignment
with donor development priorities, and government systems of planning, implementation and M&E.
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