A Plan For Reducing Poverty Through Debt Forgiveness

In 1995 James Wolfensohn was appointed president of the World Bank. With this new opportunity he designed a plan in hopes of reducing poverty through debt forgiveness. The plan was called the highly indebted poor countries (HIPC) initiative Countries would be eligible for this plan if they had unsustainable debt, debt ranging from 200-250% of their export earnings. The first stage of HIPC involved a structural adjustment for 3 years until the Decision Point was reached, if the debt was still unsustainable there would be a 67% cancellation. The country would then enter stage two which included another 3 years of adjustment until the completion point, 80% debt reduction and debt owed to the IMF would be cancelled by taking out of the HIPC†¦show more content†¦In 2001 Ghana began the process in hopes of qualifying for the highly indebted poor countries (HIPC) relief initiative in hopes of gaining financial commitment to the Ghana Poverty reduction Strategy (GPRS). The goal of t he GPRS and HIPC was to increase food security and income as well as welfare needs such as health, education, and water. Ghana’s economy at the time was dealing with high inflation, and declining exchange rate. â€Å"The HIPC initiative aims to reduce the NPV or net present value of external debt to a maximum 150% exports or, for small open economies, to 250% of government revenue at the time of HIPC completion point†(Afoom, N 2011). The main problem most countries seem to face with regards to HIPC is whether or not debt sustainability is achievable when it comes to low-income countries. While the original HIPC initiative was quite successful in relieving debt and reaching Ghana’s completion point, the enhanced HIPC is believed to be what will keep them from falling back into where they started. The enhanced HIPC initiative was born during the G summit in Cologne, Germany in 1999. The initiative not only helps develop the country but also puts into place strategies that can be clearly used to reduce poverty. Funding for the initiative comes from two types of creditors; bilateral and commercial, and multilateral creditors. With the new enhanced HIPC initiative came new components and policies. The enhanced HIPC