Benefits of Debt Cancellation and Agriculture Pricing Policies
The authorities recognize that debt relief under the initiative would provide a unique opportunity to free up resources for additional poverty reducing spending. They also recognize that debt relief under the initiative would provide a unique opportunity to free up resources for additional poverty reducing spending. They also recognize that, to enable the country to benefit from the resources made available for the overarching objectives of poverty reduction and economic growth, structural reforms initiated in critical areas , including governance and anti-corruption, need to be accelerated. Against this backdrop, the authorities formally communicated to the Fund and the World Bank (in a letter dated March 23, 2006) that they wished to initiate discussions on the possibility of debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and, subsequently, under the Multilateral Debt Relief Initiative (MDRI).
In 2006 the World Bank, International Monetary Fund and African Development Bank agreed to completely cancel the debt of 18 qualifying countries. The total debt cancelled amounted to approximately $40 billion dollars with expected annual debt payment savings of one billion dollars. These countries were so indebted that they were spending upwards of 30% of total income purely on servicing the debt. Many were forced to take out new loans to repay the old loans. The condition described in these countries reflects similar conditions as in the theory of the vicious cycle of poverty. These countries spent a large portion of money on servicing debt and the rest was dedicated to immediate needs of the people, such as food and water. The focus was on repaying debt and providing means to get by as opposed to saving and making important social overhead investments.
The projected benefit to the debt cancellation was... [continues]
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