CHAPTER 10 INTERNATIONAL MONETARY SYSTEM 273 ing International Management Case ganking on Forgiveness James Wolfensohn became head of the World Bank, Then, in 2006, the world’s largest international lending institu- dams, work alongside the HIPC initiative to help countries reach their had erected a vast modern infrastructure had “screwed up” in Africa, tions launched the Multilateral Debs Relief Initiative (MbRIy oads, and power plants) for Africa’s poor, but the gap between rich debt-relicef goals. As of late 2014, of the 39 countrie id poor did not narrow. In fact, the policies of the bank and global or potentially eligible for HIPC assistance. 35 are receiving f iancial alon regulators had created a new crisis in sub-Saharan Africa: debt relief from the IMF and other creditors. And all 5y nations were now mired in debt they could not possibly repay. have had their debt stocks reduced by 80 pencent e Ltica’s total debt at the time almost equaled the annual gross adebt service as a pencentage of GDP drop from 114 percen ioal prodact of the entire continent. For instance, in Mozambique percent here 25 percent of all children die from infectious disease before the age of five, the government w 35 One success story is Uganda. Uganda was the first country as spending twice as much paying debt as it was spending on health care an But jast when many countries were receiving debt relief, the declared eligible for assistance in 1997 and was the first to receive debt relief under the HIPC initiative in 1998. The decision to begin the program with dcbate over aid versus loans arose again. Groups debated how to under the brutal dictatorship revent economic collapses and debt problems in the develop a pariah by creditors of Idi Amin, Uganda ated a But then President Yoweri Maseveni led process of economic reform. Uganda became a model country, boasting a steady growth rate of world and how to use dwindling aid more efficiently, Some wanted to give more foreign aid but the country through a decade-long wanted the money to be given as grants to financially and politically stable nations. around 5 percent, with coffee as its main export. By offering debt They also wanted World Bank funds to be given to poor nations as relief to Uganda, the World Bank and the IMF rewarded Uganda grasts and not loans that nations would need to repay exemplary track record by reducing its debt to the lowest possib Other nations feared that giving the money away as grants level-about twice the value of its exports. Savings from the debe- would drain the World Bank’s coffers, as well as their own. They relief program are pledged to improve health care and to make cknowledged that they may not be able to do as much for the primary education available to all Ugandan families least-developed countries, but that the role of the World Bank after all, is to act as a bank and not a donor. Support for this v was World Bank data that showed more than 95 percent of all loans are repaid and that poor nations are more careful with loans than they are with handouts. Globally 10-18. The World Bank and the IMF had once argued that the leniency of debt forgiveness would make it more difficult for themselves to borrow cheaply on the world’s capital markets. If you were a World Bank donor, would you sup- years, nongovernmental organizations (NGOs), such ocacy group Oxfam Intermational, had lobbied the Bank and the International Monetary Fund (IMF) to write off loans to their ort the HIPC Debt Initiative or argue against it? Explain. poorest borrowers, calling for “debt forgiveness” or “deb.10-19, While working together on the HIPC Debt Initiative. nately for the African people and their advocates, the new head of the bank put debt forgiveness at the top of his agenda. In heavily things came to a standstill when the IMF gave a more the fall of 1996, the World Bank and the IMF announced a plan·de o reduce the external debt of the world’s poorest, most optimistic forecast for Uganda’s coffee exports than did the World Bank and so argued against the need for debe relief. Which organization do you think should play a greater role in aiding economic development? Explain. ndebted Indebted Poor Countries (HIPC) Debt Initiat boos East that may qualify for debt reduction. countries. The purpose of the plan, called the Heavily ebr stocks by 50 percent, lower poor nations’ debt service, and ending in poor nations. The HIPC initiative has Mentified countries in Africa, Latin America, Asia, and the Middle Ueder the Heavily Indcbted Poor Countries (HIPC) Initiative,” Fuctsheer, International Monetary Fund wehsite (www.imfogh But debt relief is not March 24, 2014: Heavily Indebted Poor Countries (HP。 iative and Mulnlateral Debt Relicf isitiative (MDRI)-Stanus of Implementarion, World Bank website (www.weeldbank.orgl. May 19,2010: HIPC –Glance, World social Souces: “Dele Relier L is not March international banking community is using debt as a carrot and a stick: Whereas nations with good reform re- Bank website (www.worldbank.org), Fall 2007 cords will get relief, those without reforms will not.