Debt Relief and Famine

Debt Relief and Famine

Famine is the number one cause of death in underdeveloped countries. Every year thousands of people die due to starvation. What can be done to help these countries build up their economies in order to be able to take care of themselves and prevent future disasters? Through debt relief many countries have been able to focus their attention and spending on promoting human services and social overhead capital. But, what does debt relief have to do with famine?

Debt relief is the key to poverty reduction. In 1996, the International Monetary Fund (IMF) and World Bank came together and launched the Heavily Indebted Poor Countries (HIPC) Initiative (Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, 2010). Under the HIPC, the Fund and Bank provide interim debt relief in the initial stage and full debt-relief upon completion (Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, 2010). In order to be considered, "countries must meet certain criteria, commit to poverty reduction through policy changes, and demonstrate a good track-record over time" (Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, 2010). The HIPC is a two-step process.

The first step of the HIPC is decision point. In order to be considered for HIPC Initiative assistance, a country must meet four qualifications. First, the country must be eligible to borrow from the World Bank's International Development Agency (Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, 2010). Secondly, the country must face an unsustainable debt burden that cannot be satisfied by traditional debt relief mechanisms (Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, 2010). Next, the country must have established a track record of reform and sound policies through IMF and World Bank supported programs (Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, 2010). Lastly, the country must have developed a Poverty Reduction Strategy Paper (PRSP) through a broad-based participatory process within the country (Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, 2010). Once the country reaches the decision point, it can begin receiving interim relief on its debt service that is falling due (Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, 2010).

The second step of the HIPC Initiative is completion point. In order to be considered for completion point, the country must meet three more qualifications. First, the country must establish a further track record of good performance under the programs supported by loans from the IMF and World Bank (Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative, 2010). Then, they must implement, satisfactorily, key reforms agreed to at the decision point (Debt Relief Under the Heavily Indebted Poor Countries