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Introduction
Debt relief has become a prominent issue in recent discussions about development, poverty and the relationship between developed and developing countries. The debt problems of the poorest countries have attracted the attention of development agencies that fear that the crisis may worsen poverty and economic decline in which the indebted nations are trapped. The inability to serve external debt by the severely indebted low-income poor countries is vividly reflected not only in massive build-up of arrears but most importantly by the number of frequency of rescheduling. Thus the debate on debt relief is no longer confined to economic and financial spheres; it is transcending every human domain-health, education, agriculture and industry.
Many development agencies and skeptics have expressed widespread doubts regarding the Heavily Indebted Poor Countries Initiative (HIPC) launched in 1996 and its successor the Enhanced Heavily Indebted Poor Countries Initiative (EHIPC) ‘s ability to achieve the promised objective of a “robust exit from the burden of unsustainable debts” for developing countries. Problems associated with the design and implementation of the initiative suggest that neither of the two HIPC versions has succeeded in providing adequate response to the Third World ’s debt overhang. An analysis of key debt indicators shows that external debt and debt-servicing problems are most severe and persistent in the heavily indebted poor countries (HIPCs), the target group of the HIPC Initiative.
Throughout the process, creditors failed to put sufficient political will, resources and serious analysis into the debt reduction operations. Debt reduction targets were set and reset arbitrarily - writing off 30 percent, then 50 percent, and so on-rather than based on serious assessments of the needs of each country. Despite claims of success by creditors for their Heavily Indebted Poor Countries (HIPC) initiative for debt reduction, the IMF estimated that Africa's debt service payments would only go as low as 17.1 percent of export earnings in 2001 (down from 20.3 percent in 1999, before rising again to 18.4 percent in 2002. This is still a crippling economic burden, as African leaders as well as debt cancellation campaigners continue to stress. The overwhelming majority of the debt is owed to the World Bank and the IMF. But neither the international financial institutions nor the rich creditor countries gave any indication that they were willing to consider more than marginal adjustments in the HIPC program.
The process has been much slower than expected and the initiative is suffering from problems of under funding, excessive conditionality, and restrictions over eligibility, inadequate debt relief and cumbersome procedures.
Footnote:
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A research Coordinator with the African Forum and Network on Debt and Development
charles@afrodad.co.zw
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