Debt Relief

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Debt Relief

• Nicholas Dossett Rachel Miller
• November 20th, 2013

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What is Debt Relief?
From Google A partial or total remission of
debts, especially those owed by developing
countries to external creditors. What does this
mean?
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4 International Institutions
The World Bank Group The International Monetary
Fund The United Nations The African Development
Fund
2 Major Initiatives
The Heavily Indebted Poor Countries Initiative
(HIPC) The Multilateral Debt Relief Initiative
(MDRI)
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The World Bank and IMF

• Bretton Woods Institutions
• twin intergovernmental pillars
• supporting the structure of economic and
  financial order

How are they different?

• World Bank ? a development institution
• IMF ? cooperative institution, maintains system
  of payments and receipts

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The World Bank

• Activities
• Loans, Credits, Grants
• Supporting investments in
• Education
• Health
• Administration
• Infrastructure
• Development
• Agriculture
• Environmental Natural Resource Management
• Co-financing
• Made up of 5 institutions
• The International Bank for Reconstruction and
  Development (IBRD)
• The International Development Association (IDA)
• The International Finance Corporation (IFC)
• The Multilateral Investment Guarantee Agency
  (MIGA)
• The International Centre for Settlement of
  Investment Disputes (ICSID)

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The IMF

• Fundamental mission to ensure stability in the
  international system
• an organization of 188 countries
• Goals
• foster global monetary cooperation
• secure financial stability
• facilitate international trade
• promote high employment and sustainable economic
  growth
• reduce poverty around the world
• Three Activities
• Surveillance ways keeping track of the global
  economy and the economies of member countries
• Technical Assistance giving practical help to
  members
• Lending to countries with balance of payments
  difficulties

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The United Nations

• founded in 1945, after WWII
• 4 Main Functions
• Keep peace throughout the world
• Develop friendly relations among nations
• Help nations work together to improve the lives
  of poor people, conquer hunger, disease and
  illiteracy, and encourage respect others rights
  and freedoms
• To be a center for harmonizing the actions of
  nations to achieve these goals

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The AfDF

• The African Development Fund (AfDF) is the
  concessional window of the African Development
  Bank (AfDB) Group.
• Objective to help reduce the debt burden of
  eligible Regional Member Countries (RMCs) free
  up resources for poverty reduction and
  development
• Functions
• Promotion of economic and social development
• 40 least developed African countries
• Concessional funding and technical assistance
• Participant in the internationally coordinated
  debt relief programs
• Enhanced HIPC Initiative MDRI

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The HIPC Initiative

• Launched in 1996 by International Development
  Association (IDA) and IMF
• Comprehensive approach to debt reduction
• ensure that no poor country faces a debt burden
  it cannot manage
• provide a fresh start to countries with a foreign
  debt
• voluntary provision of debt relief by all
  creditors
• multilateral, bilateral, or commercial
• Enhanced in 1999 as an outcome of review by IDA
  and the IMF
• debt-burden thresholds adjusted downward
• broader group of countries
• larger volumes of debt relief
• earlier assistance
• floating completion point

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The UN Millennium Development Goals

• Agreed to by all the worlds countries and all
  the worlds leading development institutions
• Target date of 2015
• Eradicate extreme poverty and hunger
• Improve maternal health
• Achieve universal primary education
• Combat HIV/AIDS, malaria and other diseases
• Promote gender equality and empower women
• Ensure environmental sustainability
• Reduce child mortality
• Develop a global partnership for development

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Poverty Reduction Strategy Papers (PRSP)

• Launched September 1999 by the World Bank and the
  IMF
• Of?cially, MDG and PRSP objectives are not linked
• MDGs were conceived within the UN system
• PRSP was a Bretton Woods (IMF and World Bank)
  initiative
• World Bank reports annually on progress towards
  MDGs

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The MDRI

• A supplement to the HIPC
• Proposed by the G-8 in 2005
• Provides for 100 percent relief on eligible debt
  from institutions
• The IMF
• The IDA of the World Bank
• The AfDF
• Intended to help advance the MDGs
• Recipient countries must have met the completion
  point under the HIPC Initiative

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HIPC Initiative Requirements

• First step Decision point
• Four conditions
• 1. Eligible to borrow from the IDA the IMFs
  Poverty Reduction and Growth Trust
• 2. Face an unsustainable debt burden
• 3. Established a track record of reform and sound
  policies
• 4. developed Poverty Reduction Strategy Paper
  through a broad-based participatory process
• When a country reaches its decision point it may
  immediately begin receiving interim debt relief
• Second Step Completion Point
• 3 Conditions
• Establish a further track record of good
  performance
• Implement satisfactorily key reforms agreed upon
  at the decision point
• Adopt and implement its PRSP for at least 1 year
• When a country reaches its completion point it is
  allowed to receive its full debt relief committed
  at the decision point

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MDRI Requirements

• Reach the completion point under the Enhanced
  HIPC Initiative
• Per capita income below 380
• Outstanding debt to the Fund at end-2004
• Current on obligations to IMF
• Demonstrate satisfactory performance in
  Macroeconomic policies implementation of a
  poverty reduction strategy

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HIPC and MDRI Results

• HIPC relief to 29 post-decision countries 41.7
  Billion (NPV)
• 20 Billion corresponds to completion point
  countries

2005 2006 2010 2011 2012 2013 Future

• 40 Countries qualified for HIPC
• 29 reached decision point
• 30 countries received 45.8 Billion in MDRI relief

• 76.4 Billion in HIPC relief committed to 36
  countries

• Poverty reduction expenditures increased from 6.3
  of GDP in 2001 to 8.8 of GDP in the 36 HIPC
  Countries

• Debt-service payment dropped from 2.8 of GDP in
  2001 to 1.3 of GDP
• Poverty reduction expenditures increased to
  10.1 of GDP

• 36 of 39 HIPC eligible countries had reached
  completion point have received debt relief
  under HIPC and MDRI

• helping low-income countries achieve their
  development goals
• without creating future debt problems,
• keeping countries that have received debt relief
  on a sustainable track.

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Debt Relief in Burkina Faso

• Burkina Faso remains committed to the structural
  adjustment program it launched in 1991
• 1997 became the 2nd African Country 3rd
  worldwide to benefit from HIPC
• 2000 (Feb. ) Reached decision point
• Set to receive 115 Million in 2000 (contingent)
• Expected to reach completion point in 2001 by
  fulfilling following conditions
• Consolidation of macroeconomic progress (PRGF)
• Implementation of policy reforms in the
  medium-term policy framework
• Prepare full PRSP
• Implement PRSP for at least 1 year
• Qualified for US398 Million- a 50 reduction in
  outstanding stock of debt
• 2002 completed enhanced HIPC criteria
• 2002 exceptional debt relief, or "topping-up
  committed
• additional US129 million (NPV)
• to mitigate results of exogenous shocks to its
  exports
• Should have finalized its second PRSP covering
  the years 20042006, implementation period was
  extended into 2007/2008
• 2005 qualified for debt relief under the MDRI
• 2009 annual per capita assistance was estimated
  at 81
• Under the Poverty Reduction and Growth Facility
  (PRGF) IMF noted that performance criteria were
  (completely or mostly) met in 2010

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Debt Relief in Burkina Faso

• Debt relief under the enhanced HIPC Initiative
  US195 million (NPV)
• In addition to US229 million ( NPV) under the
  original HIPC framework in July 2000
• In 2010 638 million had been delivered under the
  MDRI
• Total nominal debt service provided under the
  HIPC Initiative is about US930 million
• Burkina Faso is recognized as a good development
  performer and partner

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A Critique of Debt Relief Programs

• General
• Foreign aid would benefit poor countries more
  than debt relief
• Many countries receiving debt relief lack the
  ability to make a good use of it
• Poor infrastructure
• Emotional side of the debate often clouds the
  efficiency of a project
• Aid would be better put to use building up what a
  country lacks rather than forgiving debts
• Un/anti-democratic institutions
• Lack of accountability
• Burkina Faso, Specific
• Liberalization of the economy required with
  programs marginalizing local artisans and workers
• Process of liberalization has been uneven?
  Inequality, Social Stratification
• industries are vulnerable to competition from
  imported goods

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Questions for Further Study

1. Burkina Faso is said to have been very successful
   with the formal debt relief programs. Do the
   people of Burkina Faso feel like they have been
   successful or that the debt relief programs
   were/are helpful?
2. How have the working people been affected by
   economic liberalization?
3. More Questions?

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