Debt relief
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Debt relief is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations. It concerns in particular the Third World debt, which started exploding with the Latin American debt crisis (Mexico 1982, etc.).
Debt relief for heavily indebted and underdeveloped developing countries was the subject in the 1990s of a campaign by a broad coalition of development NGOs, Christian organisations and others, under the banner of Jubilee 2000. This campaign, involving, for example, demonstrations at the 1998 G8 meeting in Birmingham, was successful in pushing debt relief onto the agenda of Western governments and international organisations such as the International Monetary Fund and World Bank. Ultimately the Heavily Indebted Poor Countries (HIPC) initiative was launched to provide systematic debt relief for the poorest countries, whilst trying to ensure the money would be spent on poverty reduction.
The HIPC programme has been subject to conditionalities similar to those often attached to IMF and World Bank loans, requiring structural adjustment reforms, sometimes including the privatisation of public utilities. To qualify for irrevocable debt relief, countries must also maintain macroeconomic stability and implement a Poverty Reduction Strategy satisfactorily for at least one year.
The Multilateral Debt Relief Initiative (MDRI) is an extension of HIPC. The MDRI was agreed following the G8's Gleneagles meeting in July 2005. It offers 100% cancellation of multilateral debts owed by HIPC countries to the World Bank, IMF and African Development Bank.
Arguments in favour of debt relief
Supporters use a variety of moral and economic arguments to make the case for debt relief. Much of the debt was incurred by regimes different from those that currently govern the debtor nations. Supporters of debt relief believe that people in developing countries should not be burdened with debts accrued by dictators, especially as the borrowed finance was so often used for the benefit of the ruling elite, on prestige projects and to bolster the military.Since the beginning of the HIPC programme, beneficiary countries have used some of the money saved on debt repayments for social programmes:
- In Benin, 54% of the money saved through debt relief has been spent on health, including on rural primary health care and HIV programmes.
- In Tanzania, debt relief enabled the government to abolish primary school fees, leading to a 66% increase in attendance.
- After Mozambique was granted debt relief, it was able to offer all children free immunisation.
- In Uganda, debt relief led to 2.2 million people gaining access to clean water.
Arguments against debt relief
Opponents of debt relief argue that it is a blank cheque to governments, most of which are plagued by corruption, and which immediately go out and contract further debts, partly in the belief that these debts will also be forgiven in some future date. They use the money to enhance the wealth and spending ability of the rich, many of whom will spend or invest this money in the rich countries, thus not even creating a trickle-down effect. The money is also used to increase defence budgets, which are then used to promote war. They argue that the money would be far better spent in specific aid projects which actually help the poor. They further argue that it would be unfair to third-world countries that managed their credit successfully, or don't go into debt in the first place, that is, it actively encourages third world governments to overspend in order to receive debt relief in the future.- Uganda saw a 24% increase in military spending after HIPC.
Personal debt relief
Personal debt has become an increasingly large problem in recent years. For instance, it is estimated that the average US household has $19,000 in non-mortgage debt[link]. With such large debt loads, many individuals have difficulty making repayments on debts and are in need of help.
There are many companies who offer debt consolidation services. However, such services may not always be in the best interests of the person involved and may involve taking out a loan secured on a person's home. Marketing materials are designed to persuade customers to take up the company's offer rather than offering a personal best solution for reducing debt. Where debt has become a problem, it is often best to turn to an independent consumer's association for advice before calling debt consolidation companies as they often have great experience with such problems and may be able to advise the most effective avenues for debt relief.
See also
- Anti-globalisation movement
- Conditionality
- International development
- International Monetary Fund | World Bank
- Survie NGO activist group against Third World debt
- Odious debt
- Third World debt
External links
- [Debt Relief under the Heavily Indebted Poor Countries Initiative, International Monetary Fund].
- [Borgen Project]
- [Debt Relief for Heavily Indebted Poor Countries, World Bank].
- [Debt Relief International, Development Finance Group].
- [Jubilee Research at New Economics Foundation].
- [HIPC Debt Relief: Myths and Reality (Jan Joost Teunissen and Age Akkerman, eds.), Fondad, 2004, book, pdf)]
- [Underdevelopment in Sub-Saharan Africa: The Role of the Private Sector and Political Elite (Moeletsi Mbeki), Cato Institute foreign policy brief]
- ["A truckload of nonsense: The G8 plan to save Africa comes with conditions that make it little more than an extortion racket"] George Monbiot, The Guardian, June 14, 2005,
- ["Helping Africa help itself"] The Economist, June 30 2005
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