Relieving an impoverished country of its debt would seem to almost unavoidably help the citizens of that nation. Indeed, health care and education spending is now greater than debt service payments in many countries that have been granted partial debt relief by the Heavily Indebted Poor Countries (HIPC) Initiative launched by the International Monetary Fund and the World Bank, and complete debt relief by the supplementary Multilateral Debt Relief Initiative (MDRI). Several factors, however, have kept these programs from becoming truly transformational.
For a nation to qualify for the HIPC, it must have a level of debt that cannot be managed through traditional means. The removal of this enormous burden means that badly needed resources can go to programs that aid needy citizens, just as is intended. However, the HIPC has strict rules that sharply limit this spending. In some cases, teachers are not hired and HIV/AIDS tests are not administered because the sudden spending might lead to macroeconomic instability. This is a paradox that must be confronted: Poor nations need to spend money desperately but wisely.
A more daunting obstacle is the lack of a private sector in many of the countries that are served by the HIPC. Property rights may be virtually non-existent. Without individuals and businesses willing and able to invest resources in their own country, progress can be glacial. Outside investors are forced to deal not with business partners as such, but with governmental agencies ranging from the inept to the murderously corrupt. There is no guarantee that funds meant for a hospital or school will ever find their way to the intended destination, whether because of corruption or the sheer difficulty of moving goods around in a place that is, as is so often the case in truly poor countries, at war.
Debt relief remains an important tool in reducing the terrible suffering that affects so many people in the underdeveloped world. However, it is not enough to clean the slate and say, “start anew.” Without the willingness on the part of the governing body to allow its citizens to take part in their own development, and without the right balance of emergency spending and careful investment, unmanageable debt will return, as evidenced by nations that have been borrowing money faster than their debt can be relieved.
1. Which of the following titles best summarizes the contents of the passage?
(A) Debt Relief as a Tool for Increasing Private Investment in Impoverished Nations
(B) The Difficulties of Implementing Debt Relief in Very Poor Countries
(C) Obstacles to Channeling Aid to Needy Destinations in Very Poor Countries
(D) The Inherent Flaws in Debt Relief Programs
(E) HIPC: Well-Meaning, but Insufficient
2. Which of the following was NOT mentioned as a difficulty associated with debt relief?
(A) Long-term needs have to be addressed at the same time as more immediate one.
(B) Nations that need debt relief are often in the midst of violent conflicts.
(C) Debt relief can swiftly be replaced by new debt.
(D) Private investors in very poor countries are often corrupt.
(E) The pace of development in poor nations can be extremely slow.
3. According to the passage, a nation receiving assistance from the HIPC _______.
(A) must not be engaged in a war in which it is an aggressor
(B) must have at least a minimal amount of privately held property, including businesses
(C) must not have a level of debt that can be managed through a typical debt relief program
(D) is required to allow ordinary citizens input regarding the use of resources that have been made available through the initiative
(E) would also be eligible for assistance from the MDRI
4. Which of the following can be inferred from the passage regarding some of the nations that have received assistance from the HIPC initiative and from the MDRI?
(A) They have histories of macroeconomic instability.
(B) Debt service payments once exceeded the amount of money that was spent on schools and hospitals.
(C) Property rights had to be established prior to receiving the assistance.
(D) Civil war sharply limited the amount of debt relief provided.
(E) The citizens were unwilling to take part in their nations’ development.
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