Courtesy Reuters

Getting Debt Relief Right

BLESSED ARE THE POOR?

Today 41 of the world's poorest countries are bankrupt. These nations, identified by the World Bank as "heavily indebted poor countries" (HIPCS), owe some $170 billion to foreign creditors, while half of their 600 million citizens get by on less than $1 a day. Nine out of ten HIPCS cannot sustain their debts, given their low export earnings and GNPs. Unless some of this debt is forgiven, they will be paying in perpetuity. Their creditors, on the other hand, include the wealthiest countries in the world, as well as the international financial institutions that are meant to support economic development.

In the spirit of the Jubilee (a semicentennial forgiveness of debts described in the Old Testament), a diverse and powerful coalition of political and religious leaders, Nobel Peace Prize winners, economists, rock stars, and rioting activists has rallied for a complete debt write-off. Arguing that high interest payments "crowd out" government spending on the poor, these advocates claim that forgiving national debts will help relieve the world's worst poverty. Using powerful emotional rhetoric, they offer heart-wrenching descriptions of the millions of people lacking security, adequate food, clean water, and basic health care and education. But as moving as this testimony may be, the reality is that the windfall of the current HIPC Initiative -- a $28 billion debt-relief package administered by the International Monetary Fund (IMF) and the World Bank -- does not go to the poor. Instead, it goes to the same governments that racked up the debt in the first place, many of which are weak, corrupt, and authoritarian -- hardly the best intermediaries to carry out a philanthropic agenda.

IN THE RED

During the late 1970s, many HIPCS experienced a surge in the prices of their primary export commodities, such as oil, cocoa, tin, and coffee. Based on exceptionally strong export earnings, these countries borrowed from private banks and official export credit associations and then dramatically expanded government spending. But commodity prices quickly tumbled in the 1980s, and as

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