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 a 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 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”. (World Bank).
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)”. A. Weiss, Martin. (2012). The MDG looked
to half extreme poverty by 2015. “To date, the IMF has provided MDRI debt relief to 21 countries,
totalling $3.67 billion”. (A. Weiss, M. 2012)
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 affect 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.
Source: World Bank
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 dependant and
unable to drive any real growth.