Treasurer Peter Costello and Minister for Foreign Affairs Alexander Downer are pleased to announce that the Australian Government is providing interim debt relief to Ethiopia. The announcement follows Ethiopia's qualification for the World Bank and International Monetary Fund's Heavily Indebted Poor Countries (HIPC) Initiative on 12 November 2001.
Accordingly, Ethiopia will not be required to make repayments to Australia on its debt of $A11.5 million, which is owing from a loan to assist with the purchase of sugar cane processing equipment. Bilateral debt relief to Ethiopia is expected to cost approximately $A1.2 million this fiscal year and $A2.4 million each year thereafter. The debt will be forgiven in full once Ethiopia completes the HIPC Initiative.
On 21 April 2000, Australia pledged 100 per cent bilateral debt forgiveness to countries that qualify for debt relief under the enhanced HIPC Initiative. The cost of this bilateral debt relief is additional to the aid budget.
Ethiopia is the second country to receive bilateral debt relief from Australia under the HIPC Initiative. Australia is no longer requiring repayment of Nicaragua's bilateral debt after it qualified for HIPC assistance in December 2000. Nicaragua's interim bilateral debt relief followed a two-year moratorium on debt repayments that Australia granted Nicaragua in 1998 in the aftermath of Hurricane Mitch. There are no other countries that are regarded as having unsustainable debt burdens and have outstanding liabilities to Australia.
In addition to forgiving the bilateral debts held by countries that qualify for HIPC assistance, Australia has committed $A55 million to assist the World Bank and the IMF to provide debt relief.
The Australian Government is a strong supporter of the HIPC Initiative. This comprehensive international strategy provides debt relief to the world's poorest countries where these countries work to develop sound social and economic policies and institutions, and to implement poverty reduction frameworks. In this way, the HIPC Initiative strengthens the links between debt relief and poverty reduction. By requiring countries to prepare comprehensive, locally-owned poverty reduction strategies, the enhanced HIPC Initiative ensures the proceeds of debt relief are directed towards basic health, education and poverty reduction programmes, and not lost in corruption or military spending.
Ethiopia is the 24th country to receive debt relief under the enhanced HIPC Initiative. Total debt relief committed for these 24 countries amounts to $A70 billion.