Debt Relief

While I was reading about international aid (sometimes known as Official Development Assistance) from developed countries to poorer ones, I noticed that one thing that may be even MORE beneficial to poor governments than loans and grants is debt relief. Apparently, many devloping countries are wracked by huge, unsustainable amounts of debt to rich countries - results of a 'debt crisis' in the 1980s caused by increased interest rates and wild rises and falls of commodities.

The debt situation in many countries is so bad that in some, more than 30% of the Gross Domestic Product goes toward 'servicing' the debt. In some, for every $1 of Development Assistance, $2.30 is paid in interest on loans.

In response to this massive problem, the World Bank and the International Monetary Fund set up the HIPC (Heavily Indebted Poor Countries) Initiative to allow countries with unteneble debts to receive relief. So far, it has provided relief to 28 countries. Ten more are close to receiving relief. However, many criticize the HIPC plan because it is too difficult to get into the program. Countries must submit detailed documents and show a stable economic situation for at least a year before any debt relief is provided. Furthermore, the HIPC program demands structural adjustments that many say hurts the country - Zambia, for example, was forced to cut the education budget.

But the HIPC Initiative has produced good results in some countries - Benin was able to increase its education budget after participating in the HIPC. It is interesting to see how programs such as this, that are designed solely to help countries rid themselves of poverty, can deliver such widely varying results.