The political economy of the enhanced HIPC-initiative

Only three years after its initial endorsement by the World Bank and the IMF in 1996, the Heavily Indebted Poor Country (HIPC) - Initiative was considerably altered and enhanced. How did this change come about? Neither developments in economic theory, nor empirical evidence of changed beneficiary behavior can explain the usefulness of this policy shift. The merits of a shift from ex-ante conditionality to process conditionality implied by the link of HIPC debt relief to the elaboration of Poverty Reduction Strategy Papers (PRSP) remain equally unclear. However, the change from the initial to the Enhanced HIPC-Initiative can easily be explained as a result of utility maximization behavior by national and international bureaucrats, politicians and NGO. A politico-economic model suggests that the overall rise of HIPC default risk and the symbolic value of the year 2000 have been the two major determinants of the policy shift.