The Values and Virtues of Debt Relief

The Australian Government is committed to providing targeted debt relief to poor countries as a way of assisting them in poverty reduction.

Countries with unsustainable debt levels have cut expenditure in social sector activities and infrastructure, which has led to increased poverty and worsened development outcomes.

Debt relief frees up developing countries' own resources to spend on health, education and infrastructure such as roads.

Australia has a longstanding commitment to the Heavily Indebted Poor Countries (HIPC) Initiative, to which Australia has committed $112 million since 1997/98.

On 12 September 2006, Australia paid $136.2 million to finance Australia's share of the first ten years of the Multilateral Debt Relief Initiative (MDRI). Australia is one of only a few countries to have fully met its obligations in the first decade of the MDRI. Under the MDRI, all debts owed the International Monetary Fund (IMF) and the concessional lending arms of the World Bank and the African Development Bank will be forgiven for countries that complete the HIPC Initiative.

To qualify for debt relief under the HIPC Initiative and the MDRI, countries must demonstrate good economic management and implement sound development plans to reduce poverty. The World Bank has found there to be increased spending on health and education in countries benefiting from the HIPC Initiative.

Australia also provides bilateral debt relief to heavily indebted countries through the Paris Club. The Paris Club bases its decision for relief on an assessment by the IMF of the sustainability of a country's debt burden.

In 2004, the IMF determined Iraq's debt burden was unsustainable. Paris Club creditors, including Australia, Sweden, Denmark, France, Japan and the U.S., agreed to forgive 80 per cent of the debt owed to these countries by Iraq.

Debt relief is a very good way to provide aid and is recognised by the Development Assistance Committee of the OECD as Official Development Assistance.

Many non-government organisations (NGOs) have campaigned for debt relief. For example, Make Poverty History has called for more aid, debt relief and trade reform.

2007