• Debt and HIPC

Debt and HIPC

Irresponsible lending and the lack of creditor accountability for it are arguably at the very heart of the endless string of creditor-driven attempts to grant indebted countries “a lasting exit” from debt problems. This paper argues for the establishment of a binding framework to deal with sovereign debt. It argues that such a framework would be crucial in promoting responsible lending and a system in which both borrowers and creditors would be net beneficiaries.

 Key points include:

• in refusing to reduce or give up their share of HIPCs’ (Heavily indebted poor countries) debt, various creditors take advantage of their strengthened position as creditors thanks to the renewed solvency of their debtors after debt relief.
• “vulture funds” are the main beneficiaries of rich nations’ debt relief initiatives, at the expense of some of the poorest countries in the world
• the build up of new debts leads to the benefits resulting from lower debt service being wiped out
• the concerns expressed by the IFIs about "free-riding" are fully justified; however, it is precisely their approach to developing countries’ debt that prevents them from finding a lasting and holistic solution to the debt problem.

 The paper concludes that, unless irresponsible lending is stopped, the tragic cycles of debt will continue, with their toll of underdevelopment and poverty. It proposes a binding framework to deal with sovereign debt, which could take the following forms:

• a fair and transparent arbitration process
• an international tribunal on sovereign debt to implement an international debt law
• a combination of the above

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