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
organizations 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 organizations 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.
Origins
Debt relief existed in a number of ancient societies:
- Debt forgiveness is mentioned in the Book of Leviticus, in which God councils
Moses to forgive debts in certain cases every
Jubilee year – at the end of
Shmita, the last year of the seven year
agricultural cycle or a 49-year cycle, depending on
interpretation.
- This same theme was found in an ancient bilingual Hittite-Hurrian text entitled the "The Song of Debt
Release".
- Debt
forgiveness was also found in Ancient Athens
, where in the 6th century BCE, the lawmaker
Solon instituted a set of laws called seisachtheia, which canceled all debts and
retroactively canceled previous debts that had caused slavery and
serfdom, freeing debt slaves and debt serfs.
Arguments against debt relief
Opponents of debt relief argue that it is a blank cheque to
governments, and fear savings will not 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 is estimated that the average US household
has $19,000 in non-mortgage debt. 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 by 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 is
often best to turn to an independent consumer's association for
advice before calling debt consolidation companies as consumer's
associations often have great experience with such problems and may
be able to advise the most effective avenues for debt relief.
As long as some form of Chapter 7 bankruptcy debt relief exists
within American law, the credit card companies must pay attention,
and do as much as they can to help their clients repay debts
through relatively traditional means (depending upon the service
those clients have entered). Even leaving bankruptcy aside, it is
in the best interest of credit card companies that their debtors at
least feel some motivation to continue repaying their accounts and
not simply disappear or view those ever growing balances as
untouchable.
References
See also
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