Debt Relief Initiatives in Poor Countries

613 WordsFeb 17, 20182 Pages
Debt Relief initiative Many governmental and non-governmental organizations argued that external constraint like high inherited levels of foreign debt have crippled in the capacity of low income countries to overcome poverty and that concessional lending’s are not enough. This lead to the ‘Enhanced Heavily Indebted Poor Country (HIPC)’ initiative in 1996 in collaboration with world bank to eliminate unsustainable debt in the world’s poorest and most heavily indebted countries. A summit meeting in 1999 expanded the spectrum of eligible countries for debt relief with higher and faster reliefs. This came to be known as Enhanced HIPC Initiative. The aim of Enhanced HIPC initiative was to achieve a level of indebtedness that would enable the country to service its debt in a sustainable manner. The program compares the actual level of indebtedness and debt-servicing burden to a constant theoretical sustainable level which is predetermined by the large industrial countries to which these debt are owed. Currently, the maximum net present value of sustainable debt-to-exports is 150 percent (of traditional 200%- 250%) or debt-to-fiscal revenue is 250 percent (of traditional 280%). The enable countries qualify for debt relief in two stages: In the first stage: The debtor’s country has to create a satisfactory track record in an IMF or IDA program and demonstrate the capacity to use IMF assistance prudently. Once the country is considered eligible, the data is processed. The
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