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

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Executive Summary
comprehensive database available. The well-known Global Development Finance (GDF)
statistics compiled by the World Bank provide perhaps the widest coverage in terms of
developing countries having received debt relief (from 1989 onwards), but beyond annual
aggregates they do not allow for any detail regarding individual creditors or the nature of
debt relief operations, nor does it calculate debt relief in present value terms. According to
these statistics, over the period 1989-2008, low-income and lower-middle income
countries received about 204 billion USD of debt and debt service relief, of which about
123 billion USD for HIPCs. Also the ODA statistics provided by the OECD-DAC could in
principle provide an alternative measure of the amount of debt relieved (through DACreporting
bilateral donors only, and accounted for as ODA), but for reasons explained in
the previous paragraph, this is likely to overestimate the real effort. According to the
OECD-DAC database, over the period 1988-2008, DAC reporting bilateral donors have
provided about 115 billion USD of debt relief, accounted for as ODA, of which 47.6
billion USD to HIPC countries. More concrete estimates (in PV) are only available for
HIPC countries, as assembled by the IMF and World Bank in the course of the HIPC
process; these figures indicate that HIPCs have so far received about 114 billion USD of
debt relief in (2008) present value terms.
In the remainder, we will apply the evaluation framework, at the three levels of analysis, to
assess the efficiency, effectiveness, relevance and coherence of these debt relief inputs.
The efficiency, effectiveness and relevance of the
international debt relief initiatives
There is widespread consensus that international debt relief during the 1990s, i.e. pre-
HIPC debt relief, performed rather poorly on the dimensions of efficiency, effectiveness
and relevance. All this is not illogical, as pre-HIPC debt relief (through swaps) very much
resembles old-style project aid, and piecemeal and even larger scale debt relief in the Paris
Club as well as under the original HIPC initiative shares a number of features with aid
disbursed during the heydays of the Structural Adjustment Program (SAP) logic. Both
project aid and SAPs were heavily criticised, even by donor organisations themselves, for
failing to bring about the promised development results. Debt relief that mimics these forms
of aid can therefore not be expected to perform a lot better. Moreover, with respect to the
impact of debt relief on recipient country (budgetary) cash flows (‘fiscal space’), early debt
relief efforts typically involved debt titles that were not going to be repaid in the first place
(having an economic value close to zero), hence leading to negligible fiscal space effects .
The key question, that presents itself in this evaluation, is whether the efficiency,
effectiveness and relevance of international debt relief practices has improved in the period
from 2000 onwards, when poverty reduction was explicitly formulated as an additional
objective of debt relief in the (enhanced) HIPC Initiative
Our analysis concludes that, overall, the international debt relief efforts during the last
decade can be evaluated as broadly efficient as well as effective. The HIPC Initiative
Coming to Terms with Reality
managed to reduce debt levels of the HIPCs to sustainable levels, at least after completion
point, with additional bilateral and MDRI relief reducing debt burdens even further.
Moreover, the (PRSP) process conditionality attached, focusing on improving institutional
governance and an increase of the overall pro-poor commitment of recipient country
policies and budgets, did increase pro-poor resources available and improved the
governance level. There is less (robust) evidence that recent debt relief was truly relevant,
i.e. did cause an increase in economic growth and in poverty reduction. Furthermore, the
HIPC Initiative further strengthened global creditor coordination and harmonisation in the
debt field from the Paris Club to the complete international (donor) community, with the
G-8 and multilateral institutions such as IMF and the World Bank now taking the lead,
adding to coherence with other aid interventions internationally. These results are quite
similar to results from evaluations of (general) budget support. Again this is hardly
surprising: from an aid modality equivalence perspective, most of the debt relief granted in
this period indeed looks very much like (general) budget support, both in terms of the
conditionality attached, as well as with respect to the cash flow equivalence, especially for
additional bilateral Paris Club debt relief (where Paris Club donors decided to go beyond
strict HIPC terms and grant HIPCs 100% cancellation of bilateral claims) and MDRI debt
relief by four multilaterals, again on top of HIPC debt relief, albeit for HIPCs only. The
international community also engaged in a number of (sometimes large scale) debt relief
interventions outside the HIPC framework, such as for Iraq and Nigeria. This raises the
issue of the considering debt relief for other, so far excluded, countries, for both motives of
equity and appropriateness. In the absence of perspectives of new major initiatives in this
respect, the debt swaps practice reappeared at the debt relief scene; it was usually
promoted by sector multilaterals or global funds, or in the field of climate change. Overall,
this approach remains inefficient and ineffective, unless engineered very carefully.
Finally, those debt relief interventions that resemble very much general budget support,
also fit very well in the new aid approach (NAA); in fact the NAA was pioneered through
the HIPC initiative and mainstreamed later on. As such, they are considered to be coherent
(with other aid interventions), deserving to be accounted for as ODA (in the correct way).
One element that may potentially undermine the efficiency, effectiveness and coherence of
these (bilateral) donor debt relief interventions and policies is the fact that these donor
interventions at the international level are sometimes accompanied by intra-donor
transfers, between different agencies within the donor, typically involving transactions to
partly compensate debt relief granted by the export credit agencies from the development
cooperation or other government agency budgets. A lot of donors engage in such kind of
intra-donor, inter-donor agency transfers, but very little is known about this, as the exact
system in very much donor country specific. In the course of our evaluation, we performed
such an analysis for the Belgian case, and we will illustrate its impact in the next section,
where we discuss the Belgian interventions.
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