The overwhelming debt burdens of poor countries are a major contributor to the crisis that grips the economies of most developing countries today. For the 41 most heavily indebted poor countries, total external debt rose from $55 billion in 1980 to $215 billion by 1995. (Rich, p. 189) Debt has continued to climb in most countries. African governments alone now have $350 billion of foreign debt and they have to spend two-fifths of their revenues to service it. As a result, governments have been forced to divert scarce resources away from spending on health, education, environmental protection and other vital social services and instead dedicate them to pay what are essentially unpayable debts. Recognizing that debt threatened the viability of the international economic system, the world’s rich governments, the World Bank and the IMF finally agreed in late 1996 to launch the Heavily Indebted Poor Countries Initiative (HIPC).
However, it has been a failure due to many reasons. Inadequate funding: The IMF’s (and other creditors’) contribution to HIPC is insufficient. Furthermore, instead of using its own resources to provide immediate debt relief the IMF has sought bilateral sources of funding for HIPC. By refusing to use its own funds, the IMF is abdicating its role in the debt crisis. HIPC’s terms and conditions are too stringent: The debt-to-export ratios that determine eligibility for HIPC are too high and are based on export levels and national income rather than human development needs. These levels exclude many debt-ridden poor countries, and mean that any debt relief granted will be insufficient to deliver a country to economic health.
The Essay on United States Deficit Debt Countries
Deficit: Friend or Foe In the essay Why is the Deficit a God Send and Five Other Economic Heresies by Walter Russell Mead he discusses the concepts of national debt and budget deficit. Both the debt and the deficit have some positive and negative consequences. The deficit can play a positive role in an economy in economic growth. To fully support my argument that the deficit is good for countries ...
Consequently, only a few countries have reached the stage where they have qualified for debt relief. Tied to SAPs: The IMF’s Poverty Reduction and Growth Facility (PRGF) — formerly known as the Enhanced structural adjustment Facility — has been directly linked to the HIPC Initiative. To qualify for HIPC relief, a country must go through at least three years of PRGF structural adjustment, which is notoriously difficult to complete because of its unacceptable levels of austerity. The IMF has linked any additional contributions it might make to HIPC to the financing of a permanent PRGF structural adjustment programme, despite its controversial record and the fact that its prescriptions are likely to wipe out any gains made through debt relief, given that they usually lead to cuts in spending on health care, food subsidies and education..
