The UK Government has always stressed that debt relief must be linked to poverty reduction and has strongly supported the development of the PRS process as the best way of achieving this link. PRSs set out a clear, country-led strategy upon which donor support can be built. These set policy priorities for low-income countries in the medium term, and make linkages to budgets and spending. This ensures that government revenue, aid, and debt relief from the Heavily Indebted Poor Countries (HIPC) Initiative are directed towards poverty reduction. The PRS approach has involved substantial changes in World Bank and International Monetary Fund (IMF) operations, with their programmes being framed by, and providing support to, these nationally led development plans.

The basic principle of the PRS approach is national ownership. A government will only implement policies in which it believes, so the PRS has to be written in country, by its government, with the full involvement of civil society, the private sector and the international community. This should ensure that these strategies have the widest possible support in country. There are also welcome signs of increasing interest and involvement of parliaments in the PRS process. In cases like Tanzania, for example, the PRS process has ensured a significant role for Parliament, and the part it has played is considered an important investment in the country's democratic process. The UK Government is committed to maximising country ownership of PRS approaches and ensuring that World Bank and IMF programmes are fully aligned behind them.

Although the PRS approach is still in the early stages of implementation, significant development progress in many PRS countries has already happened. For example, the latest poverty assessment for Mozambique shows a 15 per cent decline in income poverty since 1996/97, and in Tanzania, twice as many children are enrolled in primary school now than in the 1990s. Both countries have benefited substantially from HIPC debt relief.

While the UK Government is in no doubt that the PRS approach is a major step forward in the relationship between the International Financial Institutions and low-income countries, it recognises that the process may require further improvements in its design and application. DFID therefore welcomes the recent reviews of the PRS process by IMF's Independent Evaluation Office and the World Bank's Operations Evaluations Department and also looks forward to the IMF's forthcoming review of its conditionality guidelines. The UK will play a full part in discussions on these issues, and will continue to monitor the practice of the IMF and World Bank to ensure that their guidelines are effective and adhered to in practice. DFID is also preparing a policy paper on the use of conditionality by multilateral agencies and by the UK Government as a bilateral donor. This review will be a further opportunity to debate the effectiveness and legitimacy of conditionality applied by donors.

You refer to excerpts from the Zambian press in 2002 and 2003 concerning the privatisation of the Zambian National Commercial Bank (ZNCB). The Government of Zambia agreed, when it qualified for HIPC debt relief in December 2000, that implementing a process for the privatisation of ZNCB should be one of the HIPC 'triggers' for Zambia's Completion Point. Since this agreement, 75% of all IMF HIPC debt relief, which is the exceptional limit under IMF interim relief rules, has been disbursed - a total in the order of US $460 million. This means that no further relief can be provided until Completion Point. The Government of Zambia has maintained its commitment to reform ZNCB by proceeding with negotiations with potential buyers (this was the 'condition' in the original HIPC agreement between the IMF, Zambia and its debtors). In light of this progress, this specific measure has ceased to form part of the conditions in Zambia's recent agreement with the IMF on a new Poverty Reduction and Growth Facility (PRGF). This new PRGF is the key step now required for Zambia to reach HIPC Completion Point, which will enable it to receive irrevocably the balance of its debt relief from all its creditors.

HILARY BENN
SECRETARY OF STATE FOR INTERNATIONAL DEVELOPMENT