Everything about Debt Relief totally explained
Debt relief is the partial or total forgiveness of
debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations. It concerns in particular the
Third World debt, which started exploding with the
Latin American debt crisis (Mexico 1982, etc.).
Debt relief for heavily indebted and
underdeveloped developing countries was the subject in the 1990s of a campaign by a broad coalition of development
NGOs, Christian organisations and others, under the banner of
Jubilee 2000. This campaign, involving, for example, demonstrations at the 1998
G8 meeting in
Birmingham, was successful in pushing debt relief onto the agenda of Western governments and international organisations such as the
International Monetary Fund and
World Bank. Ultimately the
Heavily Indebted Poor Countries (HIPC) initiative was launched to provide systematic debt relief for the poorest countries, whilst trying to ensure the money would be spent on
poverty reduction.
The HIPC programme has been subject to
conditionalities similar to those often attached to IMF and World Bank loans, requiring
structural adjustment reforms, sometimes including the
privatisation of
public utilities, including water and electricity. To qualify for irrevocable debt relief, countries must also maintain macroeconomic stability and implement a
Poverty Reduction Strategy satisfactorily for at least one year. Under the goal of reducing inflation, some countries have been pressured to reduce spending in the health and education sectors.
The Multilateral Debt Relief Initiative (MDRI) is an extension of HIPC. The MDRI was agreed following the
G8's
Gleneagles meeting in
July 2005. It offers 100% cancellation of multilateral debts owed by HIPC countries to the
World Bank,
IMF and
African Development Bank.
Arguments against debt relief
Opponents of debt relief argue that it's a blank cheque to governments, and fear savings won't reach the poor in countries plagued by corruption. Others argue that countries will go out and contract further debts, under the belief that these debts will also be forgiven in some future date. They use the money to enhance the wealth and spending ability of the rich, many of whom will spend or invest this money in the rich countries, thus not even creating a
trickle-down effect. They argue that the money would be far better spent in specific aid projects which actually help the poor. They further argue that it would be unfair to third-world countries that managed their credit successfully, or don't go into debt in the first place, that is, it actively encourages third world governments to overspend in order to receive debt relief in the future.
Others argue against the conditionalities attached to debt relief. These conditions of structural adjustment have a history, especially in Latin America, of widening the gap between the rich and the poor, as well as increasing economic dependence on the global North.
Personal debt relief
Personal debt has become an increasingly large problem in recent years. For instance, it's estimated that the average US household has $19,000 in non-mortgage debt
(External Link
). With such large debt loads, many individuals have difficulty making repayments on debts and are in need of help.
There are many companies who offer
debt consolidation services. However, such services may not always be in the best interests of the person involved and may involve taking out a loan secured on a person's home. Marketing materials are designed to persuade customers to take up the company's offer rather than offering a personal best solution for reducing debt. Where debt has become a problem, it's often best to turn to an independent consumer's association for advice before calling debt consolidation companies as they often have great experience with such problems and may be able to advise the most effective avenues for debt relief.
Further Information
Get more info on 'Debt Relief'.
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