In August 2005, the G8 decided to cancel the multilateral debt of 18 countries which are part of the Heavily Indebted Poor Countries (HIPC) Initiative, in Uganda. This Initiative was launched by the International Monetary Fund (IMF) and the World Bank (WB) in 1996 in order to reduce the debt burden of numerous Third World countries. In 2000, it was enhanced (HIPC II) to make debt relief broader, deeper and faster. The Initiative has three aims: make the countries' debt "sustainable", bring long-term economic growth, and reduce poverty. Under the pressure of Non-Governmental Organizations (NGOs), this last point was underlined in the design of HIPC II: from then on, every applicant country has to prepare a Poverty Reduction Strategy Paper (PRSP).
[...] These new available grants seem to be used with efficiency thanks to the PEAP and the PAF. This triggered an observable improvement of the living standard, especially in rural areas that suffered the most from poverty. Nevertheless, this state of affairs has to be relativized. First of all, in spite of the regular debt relieves, Uganda is still considered as a heavily indebted country. Indeed, the country is still obliged to contract new loans in order to sustain the costs of the SAPs and [...]
[...] reduction of poverty Make the debt sustainable Before HIPC Uganda suffered a lot from the high level of its debt: it represented of its Growth National Product in 1995. Its total amount rose from US$ 172 millions in 1970 to US$ 3,2 billions in June 1999[2]. The composition of the Ugandan debt is rather unique. Indeed, the share of its debt owed to multilateral creditors increased steadily from 54% in 1989 to 81% in June 2000[3]. Thus, as both HIPC I and II concern only multilateral debt, Uganda was one of the countries which expected the most from these Initiatives. [...]
[...] Secondly, the HIPC Initiative doesn't protect the different countries against fluctuation in global commodity prices. Then, the Ugandan debt also increased because of an important decrease in the international price of some of its key productions, especially cotton and coffee. As a consequence, since the HIPC Initiative aimed at being the ‘permanent exit from the rescheduling process' and a ‘clear exit from unsustainable debt'[7], there's no denying that the Bretton Woods Institutions failed at achieving their first objective in Uganda. [...]
[...] Since the government had important difficulties in financing it, it considered the launch of the HIPC Initiative as a very interesting opportunity. Then, in order to be selected, it decided in 1997 to transform the PAPSCA into the Poverty Eradication Action Plan (PEAP), trying to take into account the problems this program had faced. In 2000, the PEAP was accepted as Uganda's PRSP by the Bretton Woods institutions, after a global consultation of NGOs and intellectuals. The four main goals of this program are: keeping a satisfying economic growth, ensuring good governance and security, increasing the incomes of the poorest and providing a direct raise of the quality of life of the poor. [...]
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