Relief for the Poorest Nations No. 463
As the 21st century begins many of the world's poorest countries -- 33 of which are in Africa -- are crippled by their debt to the world's richest countries, as a direct result of the legacy of their colonial history which resulted in the depletion of wealth and natural and human resources. Now defined by the World Bank as Heavily Indebted Poor Countries (HIPC), during the Cold War, these nations were given huge loans by Western governments and agencies which often ignored how borrowers used the money. Some loans were made to countries with repressive dictators who pocketed many millions of dollars or used the loans for military aims rather than for economic development. The repayment burden increased as countries suffered environmental disasters, such as the drought in sub-Saharan Africa, Hurricane Mitch in Latin America, and devastating floods in Mozambique. With cash crop production crippled, export earnings fell and governments no longer could keep up interest payments, which were added to the unpaid principal of the debt. Rescheduling of these loans at much higher interest rates, along with the devaluation of their currencies, increased the debt instead of reducing it. In the last 17 years, Africa's total debt has risen 350%. This debt is now not payable.
Many poor countries spend more on debt repayment than they do on education, health care, and basic human needs. The pressure to repay debt harms the environment, encouraging rainforest destruction and pollution as poor counties use cheap but environmentally-destructive ways to earn export revenues for debt payments.
Debt cancellation has been used before. To reward Egypt for supporting the Gulf War, the U.S. canceled $7 billion of its debt payments. In 1991, the U.S. canceled $2.5 billion of Poland's debt. Norway has announced plans to cancel unilaterally $180 million in poor country debt. The World Bank and the IMF created the HIPC Initiative, a program to address the debt problem, but it is very restrictive and will not solve the crippling debt crisis.
The world's largest countries met in 2006 and agreed to relieve 100% of the debt owed by 18 of the world's poorest countries. This immediate write-off, which the World Bank, the International Monetary Fund and the African Development Bank have all agreed to honor, will amount to $40 billion.
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