Besides official development aid, rich, industrialized countries can help poor countries out of poverty through debt relief – agreeing to cancel some or all of the foreign debt the poor country owes to industrialized nations or organizations such as the World Bank.

Debt relief for poorer countries can be even more beneficial than direct aid, because many third-world countries have huge amounts of external debt. It is estimated that in low-income countries, $2.30 is spent on debt for every dollar of aid received.

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While not technically Official Development Assistance, debt relief for poor countries is one of the greatest benefits they can receive. Many of the poorest countries on Earth are mired deeply in unpayable debts that take money from other areas such as health and education. The past few years have seen a great increase in awareness of the plight of these countries and programs now exist to help deeply impoverished countries cancel all or some of their debts to more industrialized nations.

Debt relief can allow countries to shift funds to development programs such as building schools.

The increase in debt that poor countries have seen in recent years has largely been the result of the so-called ‘debt crisis’ of the 1970s and 1980s. During the 1960s and 1970s, third-world countries borrowed large amounts of money from industrialized nations due to an economic boom. In the 1970s and 1980s, interest rates on loan rose, and economic recessions were caused by wildly fluctuating oil prices. Many poor countries ended up owing MORE than their original loans (due to interest rates), even though they had been making payments for years, in some cases creating ‘unpayable debt’ situations where it would be impossible to ever repay the debts fully. In Africa in 1970, for example, total external debt stood at $11 billion. In 2004, that number had increased to $295 billion.

Another reason many third world countries need relief from their massive debt is due to the fact that in many countries, corrupt and totalitarian regimes were in power until recently. In the 1970s, many of these regimes ran up enormous amounts of debt (The Jubilee Debt Campaign estimates $500 billion dollars of debt were run up by oppressive governments). When they fell, they passed this debt onto the new government. This is sometimes called ‘odious debt,’ because it generally refers to money that, rather than being used for the improvement of the country, went straight to dictators and corrupt officials. Many argue that all ‘odious debt’ should be relieved, and that it is not right for a country to have to pay billions of dollars of debt run up by a cruel dictatorship.

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The Heavily Indebted Poor Countries Initiative (HIPC Initiative) was started by the World Bank Group and another organization, the International Monetary Fund (IMF) in 1996 and was revamped in 1999. Its purpose was to reduce the amount of debt for the poor countries that met certain requirements:

• The country must face an ‘unsustainable debt situation.’ (the debt owed by the country must be significantly greater than the value of exported goods)



• The country must be qualified to receive ‘highly concessional’ aid (that is, aid that has less obligation to be repaid or a loan that has no interest) from the International Development Association of the World Bank Group or the IMF’s Poverty Reduction and Growth Facility.



• The country must keep a ‘track record’ of its economy, and create a Poverty Reduction Strategy Paper (PRSP). After this, IMF and World Bank determine what kind of debt relief the country should receive.

Debt relief is sometimes considered better than traditional aid at fighting poverty.

Countries in the HIPC program go through three stages of debt relief: Pre-decision Point, Decision Point, and Completion Point. Currently, 38 countries, 32 in sub-Saharan Africa, are at one stage of the HIPC initiative.

• Pre-decision Point: Countries in the Pre-decision Point phase of the HIPC program are possibly eligible for debt relief under the HIPC program, but are at a stage where the IMF and World Bank have not made a decision about debt relief for them yet. Pre-decision Point countries may also lack the PRSP and economic records needed to receive relief. Right now, there are 10 Pre-decision Point countries: The Central African Republic, Côte d’Ivoire, Liberia, Somalia, Togo, Comoros, Congo, Republic of Lao, Myanmar, and Sudan.



• Decision Point: Decision Point countries have completed all the requirements of the HIPC program and have started receiving debt relief. If they can achieve economical stability for one year and successfully start implementing their PRSP, they can reach the so-called Completion Point of the HIPC initiative. 10 countries have achieved Decision Point status: Burundi, Chad, The Gambia, Guinea-Bissau, São Tomé/Príncipé, Cameroon, Congo, Guinea, Malawi, and Sierra Leone.



• Completion Point: Countries that have reached Completion Point receive ‘irrevocable’ debt relief and finish the HIPC cycle. These countries DO NOT receive 100% debt relief, but supposedly get enough to bring their debt down to a ‘sustainable level.’ 18 countries have reached Completion Point since the start of the HIPC Initiative: Benin, Bolivia, Burkina Faso, Ethopia, Ghana, Guyana, Honduras, Madagascar, Mali, Maurtania, Mozambique, Nicaragua, Níger, Rwanda, Senegal, Tanzania, Uganda, and Zambia.

Map of the HIPC Pre-decision, Decision, and Completion Point countries.

So far, the HIPC Initiative has provided more than $56 billion in debt relief for the 28 countries in the Decision Point/Completion Point category. $37 billion dollars in debt relief has been given irrevocably to the 18 countries that have reached Completion Point. Already, improvements due to this debt relief are starting to be seen in some countries, especially those in sub-Saharan Africa. Uganda has used extra funds from debt-relief to increase access to clean water, and Mozambique was able to start offering children disease immunization free of cost. Other countries, such as Benin and Tanzania, used their extra money for education: Benin increased educational spending by 54%, and Tanzania raised primary school attendance by 66% after eliminating school fees.

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While the HIPC initiative is a step in the right direction for debt relief efforts – after all, it has granted billions of dollars in debt already – many people are criticizing it for creating too many requirements to get debt relief and attaching too many strings to the debt relief that countries receive.

One of the biggest problems critics – such as the Jubilee Debt Campaign – have with the HIPC initiative is that it is too selective. Since the program began nearly a decade ago, only 38 countries have been involved in the program in any way, and only 28 of these have received any amount of debt relief. The Jubilee Debt Campaign argues that the HIPC program needs to open its doors to ALL poor countries with large debts, not just those that fit certain criteria.

Debt relief allows governments to move resources toward building social structures for the poor.

Also, some say the HIPC program is influenced too much by rich OECD countries who form the management of the World Bank and IMF. These are also the countries that most third-world states are indebted too, so it is only natural that they dictate policies that are good for themselves… and not necessarily for poorer countries. This is the ‘strings attached’ portion of the HIPC program: structural and economic adjustments that are required to receive debt relief, but may not be good for the country. Often, these ‘adjustments’ result in budget cuts for the health and education sectors. The sub-Saharan African nation of Zambia, for example, was unable to hire 9,000 teachers in 2004 due to educational cuts necessary to receive debt relief.

The final problem many have with the HIPC program is that it DOES NOT get rid of all debt in poor countries. While it reduces debt to a ‘sustainable level,’ many say that this is not enough – that a complete cancellation of debt is necessary to prevent another crisis in the future.

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The Jubilee 2000 Coalition (which has evolved into the present-day Jubilee Debt Campaign), was kick-started into action by the work of the Debt Crisis Network, a British organization that managed to bring debt relief into the spotlight in 1996. The organization and movement was so powerful that it was one of the main causes for the forming of the HIPC program by the World Bank and IMF in the same year.

Later on, the organization changed into the Jubilee 2000 Coalition – a movement with a goal of canceling $90 billion in third-world debts by the year 2000. 70,000 supporters of the movement demonstrated in Birmingham on May 16 for the 1998 G8 Summit, and while they did not achieve their goal, they helped bring debt relief even further into the media spotlight.

With proper funding, poor governments could build effective embankments to guard against floods. Unfortunately, this is often not possible due to large debt repayments.

Now, Jubilee 2000 has transformed itself into the Jubilee Debt Campaign, which works to cancel 100% of debt in poor countries in order to prevent a debt crisis from ever occurring in poor countries again. The Jubilee Debt Campaign wants richer countries to allocate more money toward relieving debt and wants the World Bank and IMF to stop creating a restrictive environment for debt relief (see Problems with the HIPC Initiative).

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The 2005 G8 Summit (see mini-section below for more information on the G8 Summit) in Gleneagles, Scotland (July 6 – July 8), responding to 250,000 activists from the MAKEPOVERTYHISTORY campaign, agreed to grant debt relief to the 18 countries that have completed the steps of the HIPC Initiative (the Summit also promised that countries who complete the HIPC program in the future will also receive debt relief). What is special about this debt relief is that it promises to cancel 100% of the debt these countries have. In contrast, the HIPC program cancels only some of the debt of poor countries.

This means that HIPC ‘Completion Point’ countries, which have received some $37 billion in debt relief from the World Bank and IMF, will be able to free themselves of ALL debt ‘incurred before the end of 2004’ – another $40 billion in debt relief (mainly relief from debts these countries owe to the World Bank, IMF, and African Development Bank). It is estimated that this could increase to around $55 billion as more countries complete the HIPC program.

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IMF: HIPC Initiative

Jubilee Debt Campaign

Wikipedia: Debt Relief

Wikipedia: G8

Wikipedia: Gleneagles G8 Summit

Wikipedia: HIPC Initiative

Wikipedia: Jubilee 2000

World Bank: HIPC Initiative

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