A Brief History of debt relief

Post World War 1 Germany

Following World War 1 Germany was required to make War Reparation paymenst that caused severe hardship and were attributed by some as part of the cause of the rise to power of Hitler and cause for World War 2

Post World War 2

With the end of the war the victors wished to avoid what they consider as possible causes of the second World war and wish to avoid repeating what they perveived as mistakes made following World war 1. To this end Chapter IX of the United Nations Charter entitled "INTERNATIONAL ECONOMIC AND SOCIAL CO-OPERATION" proudly proclaimed:

Article 55

With a view to the creation of conditions of stability and well-being which are necessary for peaceful and friendly relations among nations based on respect for the principle of equal rights and self-determination of peoples, the United Nations shall promote:

a. higher standards of living, full employment, and conditions of economic and social progress and development;

b. solutions of international economic, social, health, and related problems; and international cultural and educational cooperation; and

c. universal respect for, and observance of, human rights and fundamental freedoms for all without distinction as to race, sex, language, or religion.

At Brenton Woods two powerful agancies, the World Bank and the the International Monetary Fund were set up to promote economic development and prevent poverty.(An excellent presentation of the goals of the IMF can be found at the following site: IMF

However both institutions were controled by its membership and by the size of the donations to the Bank. Decisons ultimately came to be controlled not by the interests of the debtor sbut by thye creditor nations. Debts that should have been cancelled attarcted large interests payments and amounts paid to service debt exceeded the national amounts paid on health and education

The victorious Allies set up the Marshall Plan to aid the War torn countries of Europe. By 1953 over 41.3 Billion was transferred under this plan. In 1948 Stalin refused to allow Central and Eastern European Nations to apply for aid under the Marshall Plan

By the Seventies and Eigthies it was obvious that what were term Heavily Indebted Nations could not repay their debts and were falling further and further behind.

1988 - The Paris Club introduces the "Toronto terms" that include rescheduling arrangements, debt stock reductions of up to 33 percent, and debt service reductions of up to 30 percent. Before negotiating its debt with the Paris Club, a country must agree to an IMF stabilization or adjustment program.

1988-99 Increasingly generous terms are introduced through the Paris Club's "London terms,""Naples terms,""Lyon terms," and "Cologne terms" that will offer up to 90 percent of debt and debt service reduction.

1989- The Brady Plan enjoins commercial banks to work with developing countries to reduce debt. IMF and World Bank resources can be used to facilitate these transactions. The plan stresses the importance of adjustment programs as an adjunct to debt reduction.

1996- The Heavily Indebted Poor Country (HIPC) initiative introduced by the World Bank and the IMF offers debt relief consideration to poor countries whose debt is considered to be unsustainable even after Paris Club debt relief terms are applied to all debt other than multilateral debt.

Heavily Indebted Poor Countries strategy Was proposed by the World Bank and IMF and agreed by governments around the world in the fall of 1996.  It was the first comprehensive approach to reduce the external debt of the world's poorest, most heavily indebted countries, and represented an important step forward in placing debt relief within an overall framework of poverty reduction. While the Initiative yielded significant early progress, multilateral organizations, bilateral creditors, HIPC governments, and civil society have engaged in an intensive dialogue since the inception of the Initiative about the strengths and weaknesses of the program.

1999 A major review resulted in a significant enhancement of the original framework, and has produced a HIPC Initiative which is "deeper, broader and faster". -The "enhanced HIPC" initiative proposes to reduce to US$60 billion the (1998) net present value of the debt of 33 to 36 countries, an average forgiveness rate of 54 percent. It offers a more generous interpretation of debt sustainability and formally links debt reduction with efforts at poverty reduction.

Debt sustainability, the ability to manage debts so they do not grow, is an essential condition for economic stability. Economic stability, in turn, is a foundation for economic growth and development. Many low-income countries have struggled to maintain their external debt at sustainable levels while also trying to meet development objectives such as the Millennium Development Goals (MDGs).

In spring 2005, the World Bank and International Monetary Fund implemented a new Debt Sustainability Framework in Low-Income Countries, which seeks to make that challenge less difficult by providing guidance on new lending to low-income countries whose main source of financing is official loans. The framework has been developed with the intention to better monitor and prevent the accumulation of unsustainable debt

Other Websites on Debt Relief

World Bank Group: Over 180 nations participate in this Group because of a dream to free the world from poverty by providing resources, sharing knowledge,building capacity, and forging partnerships in the public and private sectors. The World Bank is actually comprised of a few key institutions that help it accomplish its objectives.

International Bank for Reconstruction and Development

International Development Association

International Finance Committee

Multilateral Guarantee Agency


Books on World Debt Relief

Sachs, Jeffret D. The End of Poverty, Economics Possibilies for Our Time, New York: Penguin Press, 2005

Brown, Lester R (2001) State of the World 2001

Kennedy, Paul (2006) The Parliament of Man, The Past, Present and Future Toronto: HarperCollins Publishers