A/HRC/23/37 7. The term “debt relief” refers to any type of reorganization of debt which lessens the total debt burden of the beneficiary. Under the HIPC Initiative, debt relief takes various forms, including cancellation (or “forgiveness”), restructuring and rescheduling. 8. Cancellation occurs when the creditor and the debtor formally agree that an outstanding debt or part of it, no longer needs to be repaid. In other words, cancellation extinguishes all or part of the financial obligation of the debtor to the creditor. Restructuring is a process whereby the creditor and the debtor agree to alter the terms previously established for repayment of a debt. This may include forgiveness (extinction of the debt), or rescheduling which can be implemented either by revising the repayment schedule by lengthening the period or extending a new refinancing loan. 5 Rescheduling refers to a postponement of the payments due (including interest) for a specified period of time in order to reduce near-term debt service obligations, thereby providing “relief” to the debtor country.6 Rescheduling may also include forgiving or extinguishing a part of the debt. 9. It should be noted that, as opposed to other sources of finance, debt relief resources do not constitute new money from external sources.7 Their direct effect is to allow beneficiary countries to retain general budget resources that would otherwise have been spent on debt servicing. The resulting fiscal space can either be used to increase povertyreducing expenditures, to pay down debt (both domestic and foreign) or to lower taxes. In addition, for countries that had not been servicing their debt in full, the fiscal space resulting from debt relief is smaller than the stated volume of nominal debt relief. In short, “one dollar of debt relief does not necessarily translate into one additional dollar of expenditure on poverty.”8 B. How debt relief under the initiatives works 10. In order to be eligible for debt relief under the HIPC Initiative, a country must meet specified conditions, commit to poverty reduction through policy changes and establish a track record of macroeconomic stability. As a first step, a country must: (a) be eligible to borrow from IDA, which provides interest-free loans and grants to the world’s poorest countries, and from IMF’s Poverty Reduction and Growth Trust, which provides loans to 5 6 7 8 See “Debt restructuring”, OECD Glossary of statistical terms, available at http://stats.oecd.org/glossary/index.htm For example, in 2010, five HIPC Initiative completion point countries (Afghanistan, Congo, Democratic Republic of Congo, Liberia and Togo) concluded stock of debt restructuring agreements with the Paris Club, involving a total of $13 billion of which $8.9 billion was cancelled. Similarly, Guinea-Bissau concluded an agreement (on Cologne terms, entailing a 90 per cent net present value reduction) in July 2010 to restructure a total of $171 million, including arrears of principal and interest as of 31 December 2009 and maturities falling due from 1 January 2010 to 31 December 2012. Under the terms of the agreement, $54 million was cancelled while $117 million was rescheduled over the three-year consolidation period. See World Bank, Global Development Finance 2012: External Debt of Developing Countries (Washington, D.C., 2012), p. 11. S. Arslanalp and P.B. Henry, “Helping the Poor to Help Themselves: Debt Relief or Aid?” Working Paper 10230 (Cambridge, MA, National Bureau of Economic Research, 2004), also cited in M. Kaddar and E. Furrer, “Are current debt relief initiatives an option for scaling up health financing in beneficiary countries,” Bulletin of the World Health Organization, vol. 86, No. 11 (November 2008) p.3. M. Kaddar and E, Furrer, “Are current debt relief initiatives an option” (see footnote 7), pp. 1-9. 5