Will Debt Relief Really Help?

In 2000, debt relief for what the International Monetary Fund (IMF) and World Bank term Heavily Indebted Poor Countries (HIPCs) was the cause of the moment in development theory, attracting international attention and broad agreement that it was the single most important piece of the poor-country development puzzle. Widespread consensus emerged that international lenders must forgive the HIPCs' debt burden. In the ebb and flow of development trends, debt relief thus had its moment in the sun, and rich countries rightly agreed to forgive some of the debt--although the World Bank and the IMF did not.

This relief, although limited to bilateral debt, will help. But when the G-7 and other advocates of development move on to the latest fad in the quest for solutions to the problems of the world's poorest countries--whether disease, education, or some yet unmentioned ill--all the attendant causes of debt relief will still need to be addressed.

All of these problems are long-term concerns. None of these countries will be wealthy tomorrow, nor will they solve all their troubles immediately. For G-7 nations, perhaps especially the United States, accustomed to focusing on the next quarter's profits rather than long-term returns, the temptation will likely be to give up too soon. That decision would be a mistake.

The fact is that these poor countries face far too many problems in addition to overwhelming debt, many of which are precisely what caused the debt accumulation in the first place. Many factors--disease, poverty, lack of education, lack of institutions, lack of transportation infrastructure, lack of food, lack of business, lack of security, lack of foreign investment, and lack of prospects--continue to stifle the economic growth of these countries, and they will continue to do so after debt relief. Without a change in these circumstances, debt relief will be only a short-term palliative, and these countries will find themselves back in the same predicament that they now face.

What Is the Problem?

Bad policies and their attendant outcomes, both within and outside these countries, contribute to the "problem of poverty." Poor countries must improve domestically in a number of areas; their poverty cannot be attributed entirely to external factors. Although these countries face some valid domestic woes, many of the excuses for poverty are invalid. A lack of natural resources, for instance, does not fully account for the poverty the HIPCs face. Africa, where most of the world's 41 HIPCs are located, is awash in natural wealth, from diamonds, gold, and oil to arable agricultural land. ¹ As George Ayittey observes, the continent has abundant natural potential. This potential, however, remains largely unrealized. Citing examples such as Russia, some have argued that such resources are more a curse than a blessing, but that argument does not explain the lack of development. Country after country has become rich based on these very resources.

Some maintain that lack of progress among HIPCs is due in part to geographical location and the affliction of disease that accompanies that location. The impact of disease, from malaria to cholera to AIDS, is indeed debilitating; but even if disease were entirely eliminated, the lack of institutions (or the persistence of corrupt ones) would keep the people of these countries poor.

I do not belittle the effects of disease or suggest that people should abandon attempts to mitigate the health crisis in the HIPC countries. Rather than quibble about which cause of poverty should be considered paramount, however, we must first acknowledge that the troubles of these countries are legion and that each must be addressed for lasting development to take place. For example, a couple of years ago, before the debt-relief craze, corruption was the cause du jour. The World Bank and other august institutions held conferences, everyone nodded their heads sagely, and learned people everywhere agreed that corruption was corrosive and that something must be done. Although work to address this particular problem undoubtedly continues...