Should the IMF and World Bank cancel all the debts of poor countries Research Paper

Should the IMF and World Bank cancel all the debts of poor countries C.Q. Researcher, September 28, 2001, vol. 11, issue - Research Paper Example A good example is the oil crisis of 1973 whereby oil prices escalated forcing governments of many developing countries to borrow heavily from the IMF, the World Bank and other creditors to procure much needed oil supplies. Much of this borrowed capital was spent on noncapital generating ventures or was lost through corruption. This means that these countries were mostly unable to channel these borrowed funds into their economies to fuel economic growth that would in the near future generate the capital necessary to pay off the debt (Palley, 2003, p. 83). Review Proponents of debt abolition have been advocating heavily for cancellation of all debts of poor countries. The most prominent of these is the Jubilee Debt Coalition, a UK-based coalition of local groups and organizations calling for the cancellation of heavy debts owed by developing countries. The issue of debt cancellation is important because heavy debts which are not payable prevent the eradication or reduction of poverty i n the third world. The World Bank and IMF are party to the Millennium Development Goals one of the main aims of which is to significantly reduce the number of the world’s people living below the poverty line (Pettifor, 2003, p. 71 – 73). ... xperiences of countries such as Nigeria, Afghanistan and Iraq indicate that this general lack of insecurity provides a conducive environment for the growth of terrorist organizations with a global reach. These terrorists pose a serious threat to the national security of all countries, including developed countries. The arguments proposed by both proponents and opponents of debt cancellation have their strengths and weaknesses. Proponents include organizations such as the Jubilee Debt Coalition, experts such as renowned economists in the US, and policy makers in the US and the European Union. They have put forward a number of good arguments. Firstly, they argue that many of the loan deals have terms that are unfair to the borrowing poor countries. According to Palley (2003) the interest rates are usually set very high because many of the developing countries are desperate and they borrow on short notice (p. 86). For this reason, the loans end up being very expensive, an unfortunate si tuation considering that the developing countries are the poorest yet they often receive loans that are more expensive than those received by developed countries. In fact, many countries have already paid the amounts they owed several times over because the debt grows faster than they can pay due to high interest. Therefore, it is only fair that the World Bank and the IMF cancel these debts while it is working on a solution to ensure that in future, terms of loans consider the state of a country’s economy and its rate of economic development. Secondly, proponents argue that debt needs to be cancelled in order to harmonize goals of the United Nations with those of the World Bank and the International Monetary Fund. The UN’s Millennium Development Goals heavily emphasize the reduction of