Will International Debt Forgiveness Help Citizens in Developing Countries?

The issue of debt relief is becoming a hot topic in news and politics in current times. Major initiatives have been made and plans drafted to forgive the debts owed to institutions like the International Monetary Fund (IMF) and the World Bank by developing countries. Many people question the efficacy of programs that will terminate debt owed by developing countries, arguing that it would be too expensive or inconsequential to the standards of living the these countries. Debt relief in developing countries can aid the poor standards of living and extreme poverty in many of the third world or developing countries that owe large amounts of money to the IMF and World Bank. The real problem is creating guidelines, rules, and expectations for how these countries use their loans and the funds from forgiven debts. There are circumstances that must be created for debt relief to successfully affect the poor populations of these countries, or it may all be in vain.

For debt relief to work properly and reach the people of indebted countries, the IMF and World Bank have to use guidelines and requirements to ensure that the governments of the countries in question have the appropriate infrastructure and government to use funds appropriately and create a stable economy. In the IMF's Multilateral Debt Relief Initiative plan there are already requirements in place for the eligibility of a country to have its debt forgiven. The country must have satisfactory economic performance, poverty reduction programs, and transparent public use of the funds.[1] These are safeguards built into debt relief that promote a more stable economy and more importantly ensure the effectiveness of money put into the country. If a country's economy is not performing up to standards, it is a financial danger to forgive its debts and a failure as far as the loans in the first place. If a country does not do enough to raise its population from poverty it is not achieving the goal of the loans and needs help or guidance in creating a stable country and economy. If the country is using the IMF funds in a corrupt manner, it is a misuse of the funds and hurts the country and its people. With guidelines and requirements in place the developing country would have to work towards having a stable economy, better standards of living, and would ensure corruption doesn't interfere with the goals of the loaned money; all of these criteria ensure that a country has the economy and the policy needed to launch into the world economy on it's own and not require further financial assistance.[2]

Corruption is a major problem in lending money and forgiving debt. If the government of a developing country is corrupt in its handling of loans it is counter productive to the goal of the loans in the first place and is unfair to the lending economies that intended the loan to aid the development of the country. The Republic of Congo is an example of the corruption that has to be guarded against in order to ensure the loans accomplish their goals. The IMF loans money to the Republic of Congo but corruption involving the nationalized oil company SNPC and the leaders of the country undermines the efficiency and goals of the loans, and is an unstable and immoral base for a developing country to build on.[3] For loans and loan forgiveness to work, corruption like this has to be eliminated by incentives and requirements on the loans and debt relief.

Another factor to consider in the question of debt relief is the ability of the lenders (IMF) to absorb the cost of the debt. The current IMF Multilateral Debt Relief Initiative is estimated to be worth $37 billion over the next forty years.[4] The countries that lent the money in the first place have to be willing to cover the costs together to make sure the IMF can withstand the debt relief. The lending countries have to be able to pick up the tab where the debt is forgiven.

With these policies in place, indebted developing countries will have the infrastructure to build and maintain a successful economy and will also ensure that the money is not being abused, but instead being used properly to help the country and its people. The safeguards or requirements for debt relief create a system in which the poor citizens can feel the benefits of the loans and the extra money that would have gone to paying off the loans. In this system, by the time debt was forgiven the country would be ready to be own its own, which is the purpose of the development loans to begin with. With proper criteria being met before the loans are forgiven, debt relief can help the people of developing countries, especially in the long term.

[1] The World Bank. "The Multilateral Debt Relief Initiative: Implementation Modalities for IDA." November 18, 2005. http://siteresources.worldbank.org/IDA/Resources/MDRI.pdf

[2] Spruiell, Stephen. "Multinationals & NGOs: The IMF and World Bank: An Overview." aWorldConnected.org, August 2003. http://www.aworldconnected.org/article.php/529.html

[3] Rahn, Richard. "The IMF: Bad Cop." Citizens for a Sound Economy website. January 6, 2006. http://www.freedomworks.org/informed/issues_template.php?issue_id=2473&isitsearch=1&search1=imf

[4] The World Bank. "The Multilateral Debt Relief Initiative." World Bank Website, Nov 2005. http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTDEBTDEPT/0,,contentMDK:20260411~menuPK:64166739~pagePK:64166689~piPK:64166646~theSitePK:469043,00.html