Jam3000000amWed, 07 Mar 2007 07:14:28 +000007 21, 2007
Lowering Debts Will Help Economic Growth in HIPCs
The Initiative for the Heavily Indebted Poor Countries (HIPCs)
The World Bank and the International Monetary Fund set goals to reduce the debts of those Heavily Indebted Poor Countries (HIPCs) in 1996, known as the Initiative for the Heavily Indebted Poor Countries.
“A country was judged to have reached a sustainable level of external debt if it could meet its current and future external debt-service obligations in full without accessing debt relief, rescheduling of debt, accumulation of arrears and without compromising growth. At the outset, 41 countries were identified as being heavily indebted poor countries; 32 of these had a GNP per capita in 1993 of $695 or less, a NPV of debt to exports of 220 percent or higher or a NPV of debt to GNP of 80 percent or higher.”
This debt relief isn’t simply granted to any country who desires them. They must be, as the initiative is named for, highly indebted, or in other words, in so much debt that it is impossible for them to progress significantly. There are criteria that the World Bank and IMF consider before the grants are issued to the HIPCs. The high debt is holding the countries back, preventing them from developing and moving forward in the fast-paced world of today. “Mounting external debt adversely affects economic growth and the capacity for poverty reduction. “ These HIPCs must use a majority of their GDPs for repayments of loans or pay on incurred interests.
In 1999, the original Initiative was revised and renamed as the Enhanced HIPC Initiative. Through this, the Poverty Reduction Strategy Paper (PRSP) was developed and provided clearer, more focused goals aimed at poverty reduction through debt relief. It is stated, “Rapid economic growth, macroeconomic stability and structural reforms are critical for poverty reduction”. Aiding a country toward its debt repayments is a major step toward those essential goals. Moreover, the Multilateral Debt Relief Initiative (MDRI) was developed to assist those countries that have improved from their previous status and moved up from the Enhanced HIPC Initiative.
These Initiatives appear to have been very well thought out and effective. It’s good that aid is not going to just any country. The requirements for qualifications before and after, for the countries to progress on to the next Initiatives, make it very practical. Countries will not simply be rescued; rather, they are forced to form develop goals and plans for economic growth. This is a step for the HIPCs to finally get out of debt, become independent of others’ financial resources, and be responsible for their own economies.
