Indebted Poorest Nation

The IMFs Heavily Indebted Poorest Nation (HIPC) programme is good in principle as it promises debt relief to the poorest countries and focuses on unsustainable debt. This is only if they meet strict conditions for sustained growth and human development. However it has been too slow and demands too many conditions in return for too little money. The strain of paying back debts which are on average 4 times annual exports of the HIPC countries may cripple reforms through collapse of the country before any debt is cancelled.

Also commodity prices keep falling so many HIPC countries have gone further in debt in spite of the programme. Ldc didn't know risks and couldn't predict the crash in long run commodity prices. Similarly had their not been an arms race between America and Russia their may not have been a significant rise in interest rates. As a result Mdcs are partly to blame and therefore have a moral responsibility to cancel debt to the poor countries.

In comparison Incompetent government borrowed and wasted money as institutions didn't exist to utilise the spending. Similarly why should banks suffer because of these misjudgements in LDCs. There is a high opportunity cost of cancelling 3rd world debt including education spending and pension funds. If we cancel the debt of Pakistan because they have improved their institutions and have worked towards improving human development it can create a dilemma. India will argue that they have worked hard in paying off debt and deserve debt cancellation.

Debt cancellation is too often a tax on poor people in rich countries that ends up as benefit to the rich in poor countries Encourages people to muck about and waste money then go back and ask for more. Should this misallocation of money be payed for by the west instead of spending on healthcare and education? Overall it can be concluded that third world debt is extremely damaging to an ldc and should be cancelled. However, debt cancellation should be a process where demands associated with economic growth and human development are met. The process should include debt cancellation in instalments and not in one go.