Multilateral Debt Relief for Heavily Indebted Poor Countries

Within the landscape of financial services for the very poor developing countries, multilateral debt relief constitutes a rather new endeavour. As will be explained in the following chapter, debt relief by IMF and World Bank is distinguishable from debt rescheduling under the Paris Club, which has been undertaken since 1956.⁶¹ The Paris Club is an informal meeting of states that deliberate on conditions for debt relief on a bilateral basis. In contrast, debt relief as discussed in this chapter is of a multilateral nature and embedded in an agreed upon multilateral framework. As described at a later stage, Paris Club creditors also play an essential role within the multilateral debt relief framework under HIPC, but their role in this context is determined by the structures set out by IMF and World Bank.

Particularly the IMF has often been confronted with sovereign default by one of its member states over the years. The Brady Plan, introduced by US Treasury Secretary Nicholas Brady in 1989, features most prominently in this respect in the history of the International FinancialInstitutions. The Brady Plan introduced a plan to restructure the commercial bank debt owed by Latin American countries.⁶² The plan did not address countries whose outstanding debts were primarily to official, namely bilateral and multilateral, creditors, as is the case of HIPC. Likewise, the more recent case of Argentina, which defaulted on its outstanding debts as a developed (non-HIPC) country, needs to be distinguished from debt relief for highly indebted poor countries under the new initiative, in which debt relief has been granted as a form of development aid.63 However, at the end of this study, indirect referencewill be made to the Argentinean case with regard to the role the HIPC Initiative may play in the development of an international insolvency law (see Part V 1.).