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GAO-03-215R 1 (2002-10-11)

handle is hein.gao/gaocrptapdt0001 and id is 1 raw text is: t =GAO Accountability * Integrity * Reliability United States General Accounting Office Washington, DC 20548 October 11, 2002 The Honorable Joseph R. Biden United States Senate The Honorable Rick Santorum United States Senate Subject: Benefits and Costs of the Debt Relief Enhancement Act of 2002 Despite years of effort to provide debt relief to the world's poorest countries, these countries' debt problems still have not been resolved. In response to this situation, you and other Members of Congress introduced Senate Bill 2210, the Debt Relief Enhancement Act of 2002, to reduce these countries' debt service payments to manageable levels. The act proposes that no qualified country' pay more than 10 percent of its revenue on external debt service or no more than 5 percent if the country suffers a public health crisis. You asked us to evaluate the financial implications of the Debt Relief Enhancement Act and compare the act with other debt relief proposals. We provided your staff and other interested parties a formal briefing on our findings on September 26, 2002. The briefing discussed prior debt relief efforts and their limitations, provided information on additional Paris Club debt relief, and compared three proposals to increase debt relief. A copy of our briefing is attached. In summary, we found that the Debt Relief Enhancement Act would immediately lower the debt service of countries that qualify for relief. It would cost about $2.7 billion (present value) for 26 countries over the next 3 years and have no effect on long-term debt sustainability. If applied over a 20-year period, the act's provisions would address the long-term debt sustainability of these countries. However, the cost of the proposal would grow to between $7 billion and $12 billion (present value) for those 26 countries. An alternative debt relief proposal, promoted by the Bush administration, is to convert up to 50 percent of future multilateral concessional loans to grants.2 This proposal does not address the short-term debt service 'Qualified countries are those that are eligible to receive debt relief under the Heavily Indebted Poor Countries Initiative. Countries are eligible if existing means are not enough to make debt levels sustainable and creditors are willing to finance the additional relief. In making this determination, the World Bank decides whether (in most cases) the ratio of a country's debt (in present value terms) to the value of its exports is more than 150 percent. 2See U.S. General Accounting Office, Developing Countries: Switching Some Multilateral Loans to Grants Lessens Poor Country Debt Burdens, GAO-02-593 (Washington, D.C.: Apr. 19, 2002). GAO-03-215R Debt Relief Enhancement Act

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