The Least Developed Countries Report 2000

Aid, Private Capital Flows and External Debt - The Challenge of Financing Development in the LDCs

image of The Least Developed Countries Report 2000

What the world's poorest countries need most is not simply debt relief, but a 'New Deal' in international development cooperation, contends UNCTAD in its Least Developed Countries 2000 Report. Almost two thirds of the 48 least developed countries (LDCs) have an external debt burden, which is unsustainable according to international criteria. The report also states that past efforts to substantially decrease their debt service payments have failed, and recent attempts to finally resolve the debt problem through the Heavily Indebt Poor Countries (HIPC) Initiative are not very promising. The LDCs also looks at economic growth and social trends in the LDCs in the 1990s, financing development, and ways in which new approaches to partnerships can increase the effectiveness of aid.



Debt relief, the new policy conditionality and poverty reduction strategies

In spite of extensive policy reforms, rates of external indebtedness increased in many LDCs during the 1990s, and according to World Bank calculations, 28 LDCs - including two-thirds of LDCs that are not island economies - are entering the new millennium with levels of external indebtedness that are unsustainable even after the full deployment of traditional (pre-HIPC) debt relief mechanisms. One of the arguments of the last chapter was that the effectiveness of reforms in LDCs depended on the severity of their debt problems. This chapter assesses from the point of view of LDCs the effectiveness of the HIPC Initiative, which was introduced in 1996 as a new mechanism to deal with the debt problems of low-income countries. It addresses five questions.


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