Debt of Developing Countries - Recent Debt Relief

Recent Debt Relief

A number of impoverished countries have recently received partial or full cancellation of loans from foreign governments and international financial institutions, such as the IMF and World Bank.

Under the Jubilee 2000 banner, a diverse coalition of groups joined together to demand debt cancellation at the G7 meeting in Cologne, Germany. As a result, finance ministers of the world's wealthiest nations agreed to debt relief on loans owed by qualifying countries.

A 2004 World Bank/IMF study found that in countries receiving debt relief, poverty reduction initiatives doubled between 1999 and 2004. Tanzania used savings to eliminate school fees, hire more teachers, and build more schools. Burkina Faso drastically reduced the cost of life-saving drugs and increased access to clean water. Uganda more than doubled school enrollment.

In 2005, the Make Poverty History campaign, mounted in the run-up to the G8 Summit in Scotland, brought the issue of debt once again to the attention of the media and world leaders. Some have claimed that it was the Live 8 concerts which were instrumental in raising the profile of the debt issue at the G8, but these were announced after the Summit pre-negotiations had essentially agreed the terms of the debt announcement made at the Summit, and so can only have been of marginal utility. Make Poverty History, in contrast, had been running for five months prior to the Live 8 announcement and, in form of the Jubilee 2000 campaign (of which Make Poverty History was essentially a re-branding) for ten years. Debt cancellation for the 18 countries qualifying under this new initiative has also brought impressive results on paper. For example, it has been reported that Zambia used savings to drastically increase its investment in health, education, and rural infrastructure. The fungibility of savings from debt service makes such claims difficult to establish. Under the terms of the G8 debt proposal, the funding sources available to HIPC countries are also curtailed; some researchers have argued that the net financial benefit of the G8 proposals is negligible, even though on paper the debt burden seems temporarily alleviated.

The 2005 HIPC agreement did not wipe all debt from HIPC countries, as is stated in the article. The total debt has been reduced by two-thirds, so that their debt service obligations fall to less than 2 million in one year. While celebrating the successes of these individual countries, debt campaigners continue to advocate for the extension of the benefits of debt cancellation to all countries that require cancellation to meet basic human needs and as a matter of justice.

To assist in the reinvestment of released capital, most International Financial Institutions provide guidelines indicating probable shocks, programs to reduce a country’s vulnerability through export diversification, food buffer stocks, enhanced climate prediction methods, more flexible and reliable aid disbursement mechanisms by donors, and much higher and more rapid contingency financing. Sometimes outside experts are brought to control the country's financial institutions.