Geography and Development - Third World Debt

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Forgiving debt
The Economist Oct 3rd 2012, 15:06 by S.A. | FREETOWN
RESOURCEFUL Guineans make holes in sheet metal to convert windowless vans into
passenger vehicles. The process is not without artistry; on a recent visit Baobab saw one
conveyance whose glassless viewports were cut into the shape of love hearts. This level of
ingenuity is matched however, by a level of poverty high even by west African standards.
Baobab was musing on the privations of Guinea in light of the announcement on September
26th that the IMF and the World Bank are to cancel $2.1 billion of the country's debt. The
fund says this will reduce Guinea's debt by two thirds. President Alpha Conde's people say
this will free up $150m a year for programmes to combat poverty, and will allow the
government to raise public salaries by 10% from October.
It is unclear how much will filter down to the man and woman on the street. In neighbouring
Liberia, President Ellen Johnson Sirleaf's impressive negotiation of debt relief in her first
term did little to reassure many Liberians who have yet to see their lives improve very much.
Still, the news for Guinea is good, particularly in foreign relations. The country broke ties with
foreign lenders when it was under military rule in 2008-2010, but since its first ever
democratic poll in 2010, it has begun to end its pariah status.
Baobab recently experienced life in Guinea while in transit between Sierra Leone and Mali.
Compared with Sierra Leone and Liberia at least, the country has many fewer foreigners,
especially from the West. Mining people drive around in large land cruisers, but the big NGO
circus in its neighbours' capitals, Freetown and Monrovia, is absent in Guinea.
Perhaps that is why Guineans lack the begging culture nurtured by foreign aid. Slightly
amused by Baobab's presence, they seemed friendly and determined to get on with their
lives. Not so in Sierra Leone, where the sight of a European prompts even a five-year-old
child to demand "Gimme moni".
Can debt relief make a difference?
Efforts to forgive poor countries their debts are speeding up, but it is not yet
obvious that they will be a lasting success
Nov 16th 2000 | WASHINGTON, DC | from the print edition

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HARDLY noticed amid the hullabaloo of the presidential election, America has just given a
big (and belated) boost to the international effort to help the world's poorest debtor
countries. On November 6th, President Clinton signed legislation that provided $435m in
debt relief for HIPC countries (the ugly acronym by which the Heavily Indebted Poor
Countries are known). It also gave America's blessing to the IMF's plans to use the
proceeds of some limited sales of its gold reserves for further debt relief.…read more

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Barely five years ago, the World Bank and IMF still refused to accept that the debts owed
to them by poor countries should be relieved at all. Only in 1996 did the Bretton Woods
institutions launch the first "HIPC initiative", identifying 41 very poor countries and
acknowledging that their overall debt burden (including the international institutions'
share) should be reduced to a "sustainable" level--so long as the countries showed a
record of several years of good economic policy.…read more

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World Bank, countries that have received help so far have seen the net present value
of their debt burden fall by an average of 40%.
There has also been a big effort to make sure that the poor see the benefits. To qualify,
HIPC countries need to prepare a "Poverty Reduction Strategy Paper" (PRSP).…read more

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Cancelling Third World Debt
This report looks at the urgent need to cancel debt in the developing world as part of an
international emergency relief program to prevent poverty and needless death.
February 2006, Rajesh Makwana ~ STWR
Despite international protest, the $2.5 trillion in debt owed by developing countries is unlikely
to be cancelled within the existing framework of the global economy. Its persistence
guarantees the economic advantage of dominant economies over developing nations, and
compound interest reinforces this indebtedness.…read more

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More recently, debt has been the result of economic globalisation and the absolute
interdependency of countries through import and export (trade) activities. Decreasing levels
of self sufficiency and a growing dependence on imports (international trade accounts for
75% of GDP in the European Union) has exposed all nations to the volatility of global
monetary and trade regimes. With fluctuating exchange rates within an unstable global
financial system, cash strapped developing countries regularly find themselves without
sufficient foreign exchange currency to purchase essentials goods from abroad.…read more

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As a result many
low income countries are forced to channel huge portions of their budgets to repay
multilateral donors at the expense of essentials such as heath care, housing and education.
In this way low income countries often need to borrow more, at high rates of compound
interest, increasing their debt burden and perpetuating their dependence on rich nations.…read more

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In the meanwhile, economically dominant countries, which are also the primary creditors,
profit from both the compound interest charged on the loans and the increased access to
developing markets imposed through Structural Adjustment Programs (SAPs). The design of
this system is such that developing countries are left with no choice but to capitulate to the
demands of the export oriented, market economy espoused by affluent nations despite
ample evidence of inability of economic growth to reduce poverty.…read more

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They claimed the
write off would amount to a total of $40 billion. This was confirmed at the final G8 Summit
and was widely reported as one of the few successes of the summit for developing
countries. However a more detailed analysis revealed that the cancellation is spread over 40
Years and so amounts to only $17 billion in real terms, and it only deals with 10% of countries
in need of debt relief.…read more


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