Debt Cancellation and its impact on poverty in developing countries PowerPoint Presentation

Debt Cancellation and its impact on poverty in developing countries - PowerPoint Presentation Example The paper tells that debt relief or debt cancellation is partial or full forgiveness of debt from developed countries to developing or poorest countries. Organisation for Economic Co-operation and Development noted that debt service payments in hard currency in fact scarce domestic resources from major important investments such as in health and education and thus cause poverty as well. Debt relief is thus an integral part of the efforts taken by international community to reduce poverty worldwide. In 1996, World Bank and International Monetary Fund took initiative for Debt Relief whereby Heavily Indebted Poor Countries (HIPC) will get faster, deeper and broader debt relief. This agreement was designed with a view to make these countries introduce measures to reduce poverty in these countries. By 2005, The Multilateral Debt Relief initiative was agreed to provide 100 percent cancellation of IMF, World Bank, African Development Bank and Inter American Development Bank for all those co untries that have completed HIPC initiative. The HIPC initiative has been aiming to provide debt relief to 40 most poorest countries, with a condition that all these countries must have high level of poverty and unmanageable levels of debt. In order for a country to be eligible for debt relief, it is required to demonstrate World Bank and IMF that it has plans to reduce poverty in the country. The HIP countries later have shown sincere commitment to put sound macroeconomic policies with a view to reduce poverty. ... 269). The HIP countries later have shown sincere commitment to put sound macroeconomic policies with a view to reduce poverty (IMF and World Bank, 2001). The main purpose of HIPC initiative and debt relief was poverty reduction, and this has been found to be highly effective for many countries. The debt relief or debt cancellation to poorest countries has been found to be an effective way to improve health and education in the country and thus to reduce poverty. Figure given below illustrates that spending on education and health as improved due to the HIPC debt relief. Lala, Ranganathan and Libresco (2006, p. 6) observed that debt relief was becoming an ongoing mechanism for resource transfer so that the country can free up resources for poverty reduction purposes. It is generally agreed that debt relief to poorest countries has caused improvements in health and education spending due to resources transfer and as a result poverty has been reduced in the poorest countries. But, it is also argued that it may not be the same in the case of developing countries. Cancellation of Developing Countries’ debt and poverty problem It is argued that debt relief or debt cancellation owed by developing countries may result to reduce poverty since these countries will be able to adopt domestic policies and strengthen institutions to take advantages of global markets, which in turn help them increase the share of trade in their GDP. As these countries gain debt relief, they can participate in globalization by exporting to or importing from other countries and thus to be able to maintain favorable balance of payments. These countries also would