	Introduction

At the June 2005 Group of Eight (G8) (1) finance ministers meeting, member nations agreed on a financingplan for 100% debt relief for countries that complete the International Monetary Fund (IMF) andWorld Banks' Heavily Indebted Poor Countries (HIPC) debt relief program. There are also two pieces of legislation( H.R. 1130 and S. 1320 ) that if enacted would allow for higher levels ofdebt relief than is provided for in the G8 proposal. This report addresses the HIPC debt burden and the various debt relief initiatives, bothbilateral and multilateral, that have been implemented and proposed. Background

In recent decades, the rapid growth in poor country debt has emerged as a key foreign policyconcern. Nonetheless, many agree that high levelsof debt are a major burden for the poorest countries and that any effort to promote economic growthand reduce poverty needs to address the HIPC debt burden. The poor country debt burden is indeed staggering. In 1988, a group of majorcreditor nations, known as the Paris Club, (10) agreed for the first time to cancel debts owed to them instead ofrefinancing them on easier terms as they had done until then. In 1996, the International Monetary Fund, the World Bank, and the regional developmentbanks agreed to allow a portion of debts owed to them to be cancelled as well, and created the DebtRelief Initiative for Heavily Indebted Poor Countries (HIPC). IMF Gold. (48) 
Reaction from poor countries not included in the debt deal was critical. Key Details of the Agreement

If fully implemented, the agreement would result in immediate 100% cancellation of theremaining debts of 18 countries that have reached HIPC completion point ($40 billion) from theInternational Monetary Fund, the World Bank, and the African Development Bank, and totalcancellation of $55.6 million if all HIPC-eligible countries complete the program. The proposed agreementspecifies that HIPC countries that receive debt reduction will have their gross assistance flowsreduced by the amount of debt forgiven. In this view, any potential economic growth due to the increased resourcesprovided by debt relief may be negated by a decrease in total net assistance. (55) 
Limited Debt Cancellation. As proposed, theagreement only covers one regional development bank, the African Development Bank. Multilateral Development Bank Compensation is NotGuaranteed. Future assistance to the developmentbanks, compensating them for their debt relief, is not assured. Future Cost May Rise. Depending on whichcountries are added, the cost of HIPC may increase. Introducedby Senator Mike DeWine on June 28, 2005, the Multilateral Debt Relief Act of 2005 ( S. 1320 ) would authorize the necessary funding to implement the June 2005 G8 debt relief andauthorize the Secretary of the Treasury to instruct the U.S. Executive Director of each internationalfinancial institution to use the voice and vote of the United States to reach an agreement among theother shareholder nations to permanently cancel 100% of the debts owed to each institution by allHIPC countries.
In recent decades, the rapid growth in poor country debt has emerged as a key foreign policyconcern. Many analysts believe that this debt burden is an impediment to economic growth andpoverty reduction. Others contend that for the poorest countries, other factors such as weak politicaland economic institutions, are a greater impediment to growth than the debt burden.
There have been many efforts to help reduce poor country debt. In 1988 a group of majorcreditor nations, known as the Paris Club, agreed for the first time to cancel debts owed to theminstead of refinancing them on easier terms as they had done previously. In 1996, the InternationalMonetary Fund (IMF), the World Bank, and the regional development banks agreed to allow aportion of debts owed to them by a select group of countries to be cancelled. This effort is knownas the Debt Relief Initiative for Heavily Indebted Poor Countries (HIPC). In June 2005, the Groupof Eight (G8) nations agreed to further deepen debt relief and proposed 100% cancellation of allmultilateral debt for countries that have finished the HIPC program. Several pieces of legislation( H.R. 1130 and S. 1320 ) also have been introduced that could extend debtrelief to an even larger group of countries. As introduced, the G8 proposal raises four possibleconcerns:
Scope of Debt Cancellation -- The proposed agreement is limited to the IMF,the World Bank, and the African Development Bank. Several other development banks are majorcreditors and are not included in the proposal.
No Net New Assistance -- The proposed agreement specifies that HIPCcountries that receive debt reduction will have their total assistance flows reduced by the amount ofdebt forgiven. This money will then be reallocated among all low-income countries.
Funding is Not Assured -- The agreement promises that G8 countries willcompensate the development banks for any debt relief they provide. However, future contributionsto the development banks are not guaranteed.
Future Commitments are Unspecified -- The agreement commits G8members to cover the cost of debt relief for countries that may later enter the HIPC process. Depending on which, if any, countries are added, the potential cost of debt relief may risesignificantly.
No congressional appropriations are required at this time to implement the G8 proposal. However, additional U.S. funds may need to be appropriated in the future to fund higher levels ofHIPC debt relief.
This report will no longer be updated. For information on the current status of the G8 debtrelief proposal, see CRS Report RS22534 , The Multilateral Debt Relief Initiative , by Martin A.Weiss.