The Multilateral Debt Relief Initiative

The International Monetary Fund, also known as the fund was created in 1944 because of the great depression and with the intention of preventing a similar event. The IMF is normally the last resort for countries when in need of emergency funding and thus includes high-interest rates. “This financial assistance enables countries to rebuild their international reserves, stabilize their currencies, continue paying for imports, and restore conditions for strong economic growth”. IMF (2018). The IMF mainly looks towards exchange rate stability and promoting global financial stability. On the other hand, the world bank provides more than just a loan. The World Bank looks towards promoting more sustainable growth through loans and educating countries on future development.

The world bank supports “a wide array of investments in such areas as education, health, public administration, infrastructure, financial and private sector development etc.”. The main debt relief programmes are created with the cooperation of both the World Bank and the IMF including other institutions. The World Bank runs several projects independently in less developed countries. Public debt, also known is national debt is widely known to be disproportionally high amongst HIPCs (Highly Indebted Poor Countries). There are 40 known HIPCs for which they owe a debt to the IMF, The World Bank, other countries and private investors. The initiative began in 1996. The main premise behind the scheme was to ensure less developed economies were “not overwhelmed by unmanageable or unsustainable debt burdens”. The criteria to be eligible for the initiative was stringent. Per the World Bank, they helped wipe “36 participating countries of $99 billion in debt”.

The criteria to be considered for the debt relief programme as a HIPC is as follows, the country would have to meet a certain income threshold to be considered. The IMF and the World Bank then decide the amount and intricacies of the payments and plans to follow. The world community then commits to the plan. The second part of the initiative is that the countries will be given aid, once they have committed to a program looking to reduce poverty in their country. The main aim of the initiative to promote long-term growth and sustainability. The Multilateral Debt Relief Initiative (MDRI) was introduced in 2005, the main aim of the initiative was to clear debts of some of the most impoverished countries. In some cases, a 100% clearance of debt was proposed. The MDRI is an improved version of previous bilateral and multilateral debt initiatives over the last 20 years. “The goal of the MDRI program is to free up additional resources for the poorest countries to help them reach the United Nations’ Millennium Development Goals (MDGs)”.

Weiss, Martin. (2012). The MDG looked to half extreme poverty by 2015. “To date, the IMF has provided MDRI debt relief to 21 countries, totaling $3.67 billion”. (A. Weiss, M. 2012) The key thought one may have throughout this essay is whether the WTO and the World Bank are the real winners from these initiatives, and if the HIPC’s benefit in the long term. The initiative includes strict guidelines that must be implemented by the country otherwise they may face sanctions. The effect MDRI has on future performance is not large. Less economically developed countries may not have the resources or functionality to grow. Sending aid in the form of money may just be a short-term solution. The size of debt relief provided by the programme is small.

The graph above looks at the countries located in sub-Saharan Africa who have been approved debt relief assistance through the World Bank and IMF. Those in red have not been included even though they are eligible. This may be due to issues with conflict or difficulties passing the stringent requirements of the initiative. The initiative may not be that advantageous to the recipients, some countries have grown dependent and unable to drive any real growth.