Abstract
This article discusses the process that debtor countries go through in the two mechanisms created to work out solutions for their huge and unpayable external debts, namely, the Paris Club and the Heavily Indebted Poor Countries (HIPC) Initiative. As the international lending process is structured today, it is through these mechanisms that debtor countries obtain debt forgiveness, reduction or rescheduling. The absolute control of these two mechanisms by creditor countries will be examined, together with the crucial role reserved to the International Monetary Fund (IMF) as the final dispenser of the ‘stamp of approval’ whether debtor countries will ultimately get debt relief. Also, this article identifies the so-called ‘conditionalities’ that are attached to debt relief obtained through the Paris Club and HIPC Initiative. What sort of policy prescriptions, ‘structural adjustments’ or other domestic changes are being pushed through these mechanisms? And finally, this article examines how these conditionalities comport with the principle of economic self-determination of peoples that supposedly guarantees their right to pursue an independent process of economic development. Essentially, this article attempts to answer these questions: Are the Paris Club and HIPC mechanisms fundamentally at odds with economic self-determination? And more generally, are they respectful of the ‘rule of law’ in the international system?
Highlights
Budget constraints are severely undermining the capacity of governments of developing countries to provide their people even the most basic of social services
What sort of policy prescriptions, ‘structural adjustments’ or other domestic changes are being pushed through these mechanisms? And this article examines how these conditionalities comport with the principle of economic self-determination of peoples that supposedly guarantees their right to pursue an independent process of economic development
For the forty or so heavily indebted poor countries, the thrust was towards a reduction of public external debts; while for middle-income countries the Club leaned towards debt rescheduling only without reducing their total debt (Rieffel, 2003, p. 56)
Summary
Budget constraints are severely undermining the capacity of governments of developing countries to provide their people even the most basic of social services This lack of finance is in turn caused by several factors including, among others, huge military spending, pervasive corruption and large repayments of debts owed to the developed world. There seems to be a clear-cut division of labour among three international mechanisms created to work out solutions for developing countries’ unpayable external debts: (1) the Bank Advisory Committee, referred to as the London Club, (2) the Heavily Indebted Poor Countries Initiative, and (3) the Paris Club of creditor countries. This article only examines, and confines itself to, the Paris Club process and HIPC Initiative – the two mechanisms presently dealing with external debts owed to public creditors (e.g. bilateral creditors and international financial institutions). This article attempts to answer these questions: Are the Paris Club and HIPC mechanisms fundamentally at odds with economic self-determination? And more generally, are they respectful of the ‘rule of law’ in the international system?
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