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sticing International Management Case CHAPTER 10. INTERNATIONAL MONETARY SYSTEM Practicing Interna out. ting the activi 273 n their ency. ializes Banking on Forgiveness James Wolfe became head of the World IN hlutly admitted the bank had "screwed " of loans bad created a vast modern infrastructure ( ed up in Afric Africa d ad power plants) for Africa's poor, but the gap between sich did not hamow. In fact, the policies of the b and all regulations had created a new crisis in sub-Saharan Africa ons were more in debt they could not possibly repay s al debt at the time almost equaled the annual grossa qualed the annual grosso product of the entire continent. For instance, in Mozambique 5 percent of all children die from infectious disease before of five, the government was spending twice as much paving d he as it was spending on health care and cheation But just when many countries were receiving debt relief, the debate over aid versus loans arose again. Groups debated how to prevent economic collapses and debt peoblems in the develop he world and how to use dwindling and more efficiently. Some se dwindling aid more efficiently. Some countries wanted to give more foreign aid but wanted the money to be given as grants to financially and politically stable matice They also wanted World Bank funds to be given to poor nations as grants and not loans that nations would need to repay Other nations feared that giving the money away as grants would drain the World Bank's coffers, as well as their own. They acknowledged that they may not be able to do as much for the Then, in 2006, the world's largest international lending in t ions launched the Multilateral Debt Relief Initiative (MDR) w ork alongside the HIPC initiative to help countries reach their die gols As of late 2014, of the 19 countries eligible or potentially cluble for HIPC assistance. 35 are receiving full debe relief from the IMF and other creditors. And all 39 countries have had their debe seks reduced by Sp h ane seen their del service as a percentage of GDP drop from 114 percent to 35 percent. One success story is U Uganda was the first declared eligible for assistance is 1997 and was the first to receive debt relief under the HIPC initiatives 1998 The deciso begin the program with Uganda was not an arbitrary one. While under the brutal dictatorship of Idi Amin, Uganda was treated as a pariah by creditors. But then President Yoweri Museveni led the country through a decade-log process of economic reform and became a model country, boasting a steady growth rate of around 5 percent, with coffee as its main esport By offering debe reliefs and the World Bank and the IMF rewarded Uganda's exemplary track record by reducing its debt to the lowest possible level about twice the value of its exports Savings from the debe relief program are pledged to improve health care and to make 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 view 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. For years, nongovernmental organizations (NGOs), such as advocacy group Oxfam International, had lobbied the Bank and the International Monetary Fund (IMF) to write off loans to their poorest borrowers, calling for "debt forgiveness" or "debt relief." Fortunately for the African people and their advocates, the new head of the hank put debt forgiveness at the top of his agenda. In the fall of 1996, the World Bank and the IMF announced a plan to reduce the external debt of the world's poorest, most heavily indebted countries. The purpose of the plan, called the Heavily Indehted Peer Countries (HIPC) Debe Initiative is to slash overall dehr stocks by 50 percent, lower poor nations' debe service, and boost social spending in poor nations. The HIPC initiative has identified countries in Africa, Latin America, Asia, and the Middle East that may quality for debt reduction. Hur debt relief is not automatic. The international Banking community is using debt as stick: Whereas nations with good reform re- both a carro and a stick Whereds nations with good reform re Thinking 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- port the HIPC Debt Initiative or are against it? Explain. 10-19. While working together on the HIPC Debt Initiative things came to a standstill when the IMF gave a more optimistic forecast for Uganda's coffee exports than did the World Bank and so argued against the need for debt relief. Which organization do you think should play a greater role in aiding economic development? Explain Som "Debt Relief Under the Heavily Indebted Poor Countries (HIPC) Initiative. Factsheet, International Monetary Fund website (www.imf.org March 24, 2014, Heavily indb Pur Countries (MPC) live and Mullateral Debt Relief Initive (MDR) of Implementation, World Bank website (www.worldbank. May 19, 2010; HIPC Glance World Bank website (www.worldbank.org Fall 2007 cords will get relief, those without reforms will not