Essay
Essay APC2602 - Political Economy Of Africa Debt Relief initiatives devised for Africa
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- University Of South Africa (Unisa)
Essay APC2602 - Political Economy Of Africa Debt Relief initiatives devised for Africa
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Debt Relief initiatives devised for AfricaAfrican countries have been borrowing money from developed countries to finance
development projects. The reason why Africa is doing this is because they cannot
raise sufficient funds from their own sources. Debtor nations can fall behind in
repaying their debt for various reasons which might be
1) Wars,
2) Plummeting commodity prices,
3) Economic mismanagement and
4) Political instability etc.
Another factor why African countries can fall behind in servicing their debt is the
following:
1. Increase in the balance of payments
2. High global interest rates
3. Project that were financed by foreign investors has a poor rate of return
In order for the debt to be repaid the debt – burdened country must generate more
foreign exchange by increasing exports. This is at this point where the IMF
(International Monetary Fund) and the World Bank steps in. The Multilateral Debt
Relief Initiative (MDRI) is the last phase of debt reduction for poor countries from the
World Bank, IMF and African Development Bank.
The MDRI was first agreed by the G8 in June 2005 and has since been approved by
the boards of International Financial Institutions. The MDRI has promised it will erase
as much as 100% of all debt owed by qualifying countries, with implementation
starting in July 2006. This measure is seen as the way forward for Africa and the
battle against poverty.
The World Bank established in 1996 a Consultant Trust Fund Programme for the
Heavily Indebted Poor Countries (HIPC) debt. The goal of this initiative was to
ensure deep, broad and lasting debt relief. The HIPC would involve the immediate
write- off of all unpayable debt in Sub Saharan Africa.
Official multilateral lenders and the multinational banks may impose sanctions, which
should compel states to repay their debt. Syndicates cooperate with one another,
when one syndicate calls “default” another syndicate has the power to call in their
loans. Debt can also be renegotiating through representatives of syndicates.
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