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Debt Relief

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... The World Bank and IMF Bretton Woods Institutions twin intergovernmental pillars supporting the structure of economic and financial order How are they different? – PowerPoint PPT presentation

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Title: Debt Relief


1
Debt Relief
  • Nicholas Dossett Rachel Miller
  • November 20th, 2013

2
What is Debt Relief?
From Google A partial or total remission of
debts, especially those owed by developing
countries to external creditors. What does this
mean?
3
4 International Institutions
The World Bank Group The International Monetary
Fund The United Nations The African Development
Fund
2 Major Initiatives
The Heavily Indebted Poor Countries Initiative
(HIPC) The Multilateral Debt Relief Initiative
(MDRI)
4
The World Bank and IMF
  • Bretton Woods Institutions
  • twin intergovernmental pillars
  • supporting the structure of economic and
    financial order

How are they different?
  • World Bank ? a development institution
  • IMF ? cooperative institution, maintains system
    of payments and receipts

5
The World Bank
  • Activities
  • Loans, Credits, Grants
  • Supporting investments in
  • Education
  • Health
  • Administration
  • Infrastructure
  • Development
  • Agriculture
  • Environmental Natural Resource Management
  • Co-financing
  • Made up of 5 institutions
  • The International Bank for Reconstruction and
    Development (IBRD)
  • The International Development Association (IDA)
  • The International Finance Corporation (IFC)
  • The Multilateral Investment Guarantee Agency
    (MIGA)
  • The International Centre for Settlement of
    Investment Disputes (ICSID)

6
The IMF
  • Fundamental mission to ensure stability in the
    international system
  • an organization of 188 countries
  • Goals
  • foster global monetary cooperation
  • secure financial stability
  • facilitate international trade
  • promote high employment and sustainable economic
    growth
  • reduce poverty around the world
  • Three Activities
  • Surveillance ways keeping track of the global
    economy and the economies of member countries
  • Technical Assistance giving practical help to
    members
  • Lending to countries with balance of payments
    difficulties

7
The United Nations
  • founded in 1945, after WWII
  • 4 Main Functions
  • Keep peace throughout the world
  • Develop friendly relations among nations
  • Help nations work together to improve the lives
    of poor people, conquer hunger, disease and
    illiteracy, and encourage respect others rights
    and freedoms
  • To be a center for harmonizing the actions of
    nations to achieve these goals

8
The AfDF
  • The African Development Fund (AfDF) is the
    concessional window of the African Development
    Bank (AfDB) Group.
  • Objective to help reduce the debt burden of
    eligible Regional Member Countries (RMCs) free
    up resources for poverty reduction and
    development
  • Functions
  • Promotion of economic and social development
  • 40 least developed African countries
  • Concessional funding and technical assistance
  • Participant in the internationally coordinated
    debt relief programs
  • Enhanced HIPC Initiative MDRI

9
The HIPC Initiative
  • Launched in 1996 by International Development
    Association (IDA) and IMF
  • Comprehensive approach to debt reduction
  • ensure that no poor country faces a debt burden
    it cannot manage
  • provide a fresh start to countries with a foreign
    debt
  • voluntary provision of debt relief by all
    creditors
  • multilateral, bilateral, or commercial
  • Enhanced in 1999 as an outcome of review by IDA
    and the IMF
  • debt-burden thresholds adjusted downward
  • broader group of countries
  • larger volumes of debt relief
  • earlier assistance
  • floating completion point

10
The UN Millennium Development Goals
  • Agreed to by all the worlds countries and all
    the worlds leading development institutions
  • Target date of 2015
  • Eradicate extreme poverty and hunger
  • Improve maternal health
  • Achieve universal primary education
  • Combat HIV/AIDS, malaria and other diseases
  • Promote gender equality and empower women
  • Ensure environmental sustainability
  • Reduce child mortality
  • Develop a global partnership for development

11
Poverty Reduction Strategy Papers (PRSP)
  • Launched September 1999 by the World Bank and the
    IMF
  • Of?cially, MDG and PRSP objectives are not linked
  • MDGs were conceived within the UN system
  • PRSP was a Bretton Woods (IMF and World Bank)
    initiative
  • World Bank reports annually on progress towards
    MDGs

12
The MDRI
  • A supplement to the HIPC
  • Proposed by the G-8 in 2005
  • Provides for 100 percent relief on eligible debt
    from institutions
  • The IMF
  • The IDA of the World Bank
  • The AfDF
  • Intended to help advance the MDGs
  • Recipient countries must have met the completion
    point under the HIPC Initiative

13
HIPC Initiative Requirements
  • First step Decision point
  • Four conditions
  • 1. Eligible to borrow from the IDA the IMFs
    Poverty Reduction and Growth Trust
  • 2. Face an unsustainable debt burden
  • 3. Established a track record of reform and sound
    policies
  • 4. developed Poverty Reduction Strategy Paper
    through a broad-based participatory process
  • When a country reaches its decision point it may
    immediately begin receiving interim debt relief
  • Second Step Completion Point
  • 3 Conditions
  • Establish a further track record of good
    performance
  • Implement satisfactorily key reforms agreed upon
    at the decision point
  • Adopt and implement its PRSP for at least 1 year
  • When a country reaches its completion point it is
    allowed to receive its full debt relief committed
    at the decision point

14
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15
MDRI Requirements
  • Reach the completion point under the Enhanced
    HIPC Initiative
  • Per capita income below 380
  • Outstanding debt to the Fund at end-2004
  • Current on obligations to IMF
  • Demonstrate satisfactory performance in
    Macroeconomic policies implementation of a
    poverty reduction strategy

16
HIPC and MDRI Results
  • HIPC relief to 29 post-decision countries 41.7
    Billion (NPV)
  • 20 Billion corresponds to completion point
    countries

2005 2006 2010 2011 2012 2013 Future
  • 40 Countries qualified for HIPC
  • 29 reached decision point
  • 30 countries received 45.8 Billion in MDRI relief
  • 76.4 Billion in HIPC relief committed to 36
    countries
  • Poverty reduction expenditures increased from 6.3
    of GDP in 2001 to 8.8 of GDP in the 36 HIPC
    Countries
  • Debt-service payment dropped from 2.8 of GDP in
    2001 to 1.3 of GDP
  • Poverty reduction expenditures increased to
    10.1 of GDP
  • 36 of 39 HIPC eligible countries had reached
    completion point have received debt relief
    under HIPC and MDRI
  • helping low-income countries achieve their
    development goals
  • without creating future debt problems,
  • keeping countries that have received debt relief
    on a sustainable track.

17
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18
Debt Relief in Burkina Faso
  • Burkina Faso remains committed to the structural
    adjustment program it launched in 1991
  • 1997 became the 2nd African Country 3rd
    worldwide to benefit from HIPC
  • 2000 (Feb. ) Reached decision point
  • Set to receive 115 Million in 2000 (contingent)
  • Expected to reach completion point in 2001 by
    fulfilling following conditions
  • Consolidation of macroeconomic progress (PRGF)
  • Implementation of policy reforms in the
    medium-term policy framework
  • Prepare full PRSP
  • Implement PRSP for at least 1 year
  • Qualified for US398 Million- a 50 reduction in
    outstanding stock of debt
  • 2002 completed enhanced HIPC criteria
  • 2002 exceptional debt relief, or "topping-up
    committed
  • additional US129 million (NPV)
  • to mitigate results of exogenous shocks to its
    exports
  • Should have finalized its second PRSP covering
    the years 20042006, implementation period was
    extended into 2007/2008
  • 2005 qualified for debt relief under the MDRI
  • 2009 annual per capita assistance was estimated
    at 81
  • Under the Poverty Reduction and Growth Facility
    (PRGF) IMF noted that performance criteria were
    (completely or mostly) met in 2010

19
Debt Relief in Burkina Faso
  • Debt relief under the enhanced HIPC Initiative
    US195 million (NPV)
  • In addition to US229 million ( NPV) under the
    original HIPC framework in July 2000
  • In 2010 638 million had been delivered under the
    MDRI
  • Total nominal debt service provided under the
    HIPC Initiative is about US930 million
  • Burkina Faso is recognized as a good development
    performer and partner

20
A Critique of Debt Relief Programs
  • General
  • Foreign aid would benefit poor countries more
    than debt relief
  • Many countries receiving debt relief lack the
    ability to make a good use of it
  • Poor infrastructure
  • Emotional side of the debate often clouds the
    efficiency of a project
  • Aid would be better put to use building up what a
    country lacks rather than forgiving debts
  • Un/anti-democratic institutions
  • Lack of accountability
  • Burkina Faso, Specific
  • Liberalization of the economy required with
    programs marginalizing local artisans and workers
  • Process of liberalization has been uneven?
    Inequality, Social Stratification
  • industries are vulnerable to competition from
    imported goods

21
Questions for Further Study
  1. Burkina Faso is said to have been very successful
    with the formal debt relief programs. Do the
    people of Burkina Faso feel like they have been
    successful or that the debt relief programs
    were/are helpful?
  2. How have the working people been affected by
    economic liberalization?
  3. More Questions?

22
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  2. http//criticalfinancial.com/wp-content/uploads/br
    etton-woods-sign.jpg
  3. http//blogs.denverpost.com/thespot/files/2012/03/
    United-Nations.jpg
  4. http//www.afdb.org/en/about-us/african-developmen
    t-fund-adf/debt-relief-initiatives/
  5. http//www.afdb.org/fileadmin/assets/afdb/img/logo
    _print.gif
  6. http//www.worldbank.org/mdgs/global_partnership.h
    tml
  7. http//siteresources.worldbank.org/AFRICAEXT/Image
    s/hipcmap.gif
  8. http//www.un.org/millenniumgoals/
  9. http//www.imf.org/external/np/exr/facts/hipc.htm
  10. http//siteresources.worldbank.org/NEWS/Images/prs
    plogo-187.gif
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    clip_image002.jpg
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    ontentMDK20040942menuPK34480pagePK34370theSi
    tePK4607,00.html
  13. http//www.who.int/immunization_financing/analyses
    /debt_relief/debt_relief_map_big.jpg
  14. "Burkina Faso." Background Notes On Countries Of
    The World Burkina Faso(2011) 1. Business Source
    Complete. Web. 19 Nov. 2013.
  15. http//www.afdb.org/fileadmin/uploads/afdb/Documen
    ts/Financial-Information/Burkina20Faso20-20Deci
    sion20Point20Document20HIPC20Framework.pdf
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    htm
  17. http//www.imf.org/external/np/pp/eng/2005/bfa.pdf
  18. https//www.cia.gov/library/publications/the-world
    -factbook/rankorder/2079rank.html
  19. http//www.gsb.stanford.edu/news/research/econ_hen
    ry_g8debtrelief.shtml
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