Debt

Question 1

How have LECs found themselves in a debt crisis?

Answer 1

Borrowing money from developed world banks.
Higher oil prices 1970s.
Higher interest rates 1980s.
Falling export prices.
Problems of domestic economic management.

Question 2

Why was it impossible for LECs to pay off debt?

Answer 2

No hopes of debt being repaid.
E.g. Zambia external debt - $5,378 million - 2005.
Zambia debt service $194 million - 2005.
Accumulating interest rates.
Situation made it impossible to halt socioeconomic decline.

Question 3

What is the Heavily Indebted Poor Countries (HIPC) programme?

Answer 3

IMF and World Bank plan - after NGO lobbying.
Provided debt relief and low-interest loans to reduce external debt repayments to sustainable levels, on conditions that countries met a range of economic nd performance targets.

Question 4

What was the 2005 Multilateral Debt Relief Initiative (MDRI)?
What were the conditions? 3

Answer 4

Proposed to cancel the entire debt of HIPCs.

1. Satisfactory economic performance under an IMF poverty reduction/growth facility programme.
2. Satisfactory progress in implementing a poverty reduction scheme.
3. Adequate public expenditure management - meets minimum government standards.

Question 5

What was the result of the MDRI?

Answer 5

October 2007 - 16 LECs received debt relief under HIPC.
All in sub-Saharan Africa.
Further benefited from MDRI.
Total debts reduced from $54.7 billion in 2005, to $25.7 billion in 2006.