The World Bank and IMF estimate that approximately 5 per cent. of the total outstanding debt of all HIPC countries (US$63.2 billion in Net Present Value terms) was owed to commercial creditors.
Countries that receive debt relief from multilateral organisations and bilateral (Government) creditors are required to negotiate equivalent debt relief from other creditors, including commercial banks and companies. Many commercial banks are part of the ‘London Club’ and offer debt relief under the HIPC framework. However, a survey of 24 HIPCs in 2006 led the IMF and World Bank to estimate that only a limited number of commercial creditors (holding approximately 5.5 per cent. of the total commercial debts) have provided their share of HIPC debt relief directly.
Many of the remaining commercial creditors have agreed to around 90 per cent. debt reduction as part of operations managed by the World Bank under their Debt Reduction Facility (DRF), the remaining 10 per cent. of the debt is paid for by the World Bank and donors with some contribution from HIPCs towards the costs. By mid-2006, over $4.5 billion worth of commercial debt owed by HIPCs had been eliminated in this way.
However, some of the remaining commercial debt is bought by vulture funds. These companies wait until a country’s circumstances have improved (for example after debt relief) and then press their case through the courts, seeking large settlements. We are working bilaterally and multilaterally with HIPC Governments to raise awareness of this issue and encourage preventative action. DFID is co-funding a Debt Management Capacity Building programme and supports a wide range of other activities to strengthen public financial management and accountability. DFID also supports the World Bank’s DRF, and we have recently agreed to provide a contribution of $3.5 million to a package that will help Nicaragua buy back over $1.3 billion-worth of commercial debt.