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Youthink! Teacher Module: What a Relief! Debt Relief for the Most Heavily Indebted Poor Countries

Overview and Objectives: Students will learn about the Heavily Indebted Poor Countries (HIPC) initiative which was created in 1996 to free the 40 most heavily indebted poor countries from the burden of unmanageable debt, and its extension, the Multilateral Debt Relief Initiative (MDRI). Students will review the Enhanced HIPC website and respond to a set of ten questions.

Related Issue: Debt Relief

Level: Lower (12-14 yrs)

Subject: Economics

Learning Activity: Research

Learning Tool: Text

Materials:
HIPC website

Vocabulary:
Decision point is when a country is considered eligible for HIPC Initiative assistance. To reach decision point, a country should have a track record of macroeconomic stability, have prepared an Interim Poverty Reduction Strategy Paper (PRSP), and cleared any outstanding arrears.

Completion point means that the country can now receive full and irrevocable reduction in debt available under the HIPC Initiative and MDRI. To reach completion point, a country must maintain macroeconomic stability under an IMF's Poverty Reduction and Growth Facility (PGRF) - supported program, carry out key structural and social reforms as agreed upon at the decision point, and implement a PRSP satisfactorily for one year.

Step 1:

Ask students to review the Enhanced HIPC website and to respond to the ten questions below:

How did these countries become so heavily indebted in the first place?
In the 1970s and 1980s, in line with the economic wisdom of the time, the governments of developing countries were borrowing money in ever greater amounts so that they could finance large-scale modernization and industrialization projects. They expected their investments to yield great returns and place their country on a path to growth. Instead, the world experienced a global oil crisis which shot up the prices of commodities, which added pressure to these already strained economies. By the early 1990s it became clear that many countries were encountering great difficulty with making payments and sinking deeper and deeper into debt.

What grassroots movement was behind the drive for debt relief?
Jubilee 2000, a U.S.-based coalition of non-governmental and faith-based organizations

What institution(s) created HIPC and are providing debt relief through it?
The International Development Assistance (IDA) of The World Bank and the International Monetary Fund launched HIPC. The Initiative calls for the voluntary provision of debt relief by all creditors. To date, several multilateral, bilateral, and commercial creditors have provided debt relief.

How much money are we talking?
HIPC has provided debt relief worth $50 billion to 27 countries. (Try to put this figure into perspective. Can you figure out the amount of total foreign debt in these 27 countries? Or compare it to other debt relief programs. For example, $50 million is less than a third of what the US government spent to bail out a single company, AIG, from the current financial crisis. The United States government bailout of AIG amounted to $180 billion.)

Does the Enhanced HIPC program completely free heavily indebted poor countries of their debt?
No, the program does not eliminate a country’s debt completely, but it does bring it down to a very low level. On average, payments on remaining debt represent 1.1% of GDP.

How does a country reach the decision point?
In order to reach the decision point, a country needs to establish a certain degree of stability in its national economy, write a paper which outlines its strategy for reducing poverty, and pay off any unpaid debt.

How does a country reach the point of completion?
In order for a country to reach the completion point, it must maintain a degree of economic stability through a program developed by the International Monetary Fund, carry out agreed upon reform measures, and implement the poverty strategy satisfactorily for one year.

Which countries have reached the decision point?
Of the 40 countries identified as potentially qualifying for HIPC assistance, 35 have reached the decision point as of Sept 2009. They are Afghanistan, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Côte d’Ivoire, the Democratic Republic of Congo, Ethiopia, the Gambia, Ghana, Guinea-Bissau, Guinea, Guyana, Haiti, Honduras, Liberia, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, the Republic of Congo, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Tanzania, Togo, Uganda, and Zambia Five countries have not reached the decision point and consequently have not benefitted from the HIPC program. They are Comoros, Eritrea, the Kyrgyz Republic, Somalia, and Sudan.

Which countries have reached the completion point?
Of the 40 countries identified as potentially qualifying for HIPC assistance, 26 have reached the completion point as of Sept 2009. They are Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Ethiopia, the Gambia, Ghana, Guyana, Haiti, Honduras, Madagascar, Malawi, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Sao Tome and Principe, Senegal, Sierra Leone, Tanzania, Uganda, and Zambia.

Step 2:

Put students to action!

If you live in a developed country, have students learn how much money your government gives through bilateral and multilateral assistance to developing countriese.

If you live in a developing country, learn how much money your government receives in overseas development assistance and take action to ensure government funds are properly spent.




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