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Debt relief is the partial or total
forgiveness of debt, or the slowing or stopping of debt growth, owed by
individuals, corporations, or nations. Traditionally, from antiquity through
the 19th century, it refers to domestic debts, particularly agricultural
debts and freeing of debt slaves. In the late 20th century it came to refer
primarily to Third World debt, which started exploding with the Latin
American debt crisis (Mexico 1982, etc.). In the early 21st century, it is
of increased applicability to individuals in developed countries, due to
credit bubbles and housing bubbles.
International debt
relief
[War
reparations
In the mid-20th century, the 1953 Agreement
on German External Debts, which substantially reduced German's war
reparations, was a notable example of international debt relief. Part of the
reasoning was that German's World War I reparations were deeply resented in
Germany, and credited internationally as a cause of World War II, and thus
debt relief helped reconciliation and peace in Europe.
Third world debt
Debt relief for heavily indebted and
underdeveloped developing countries was the subject in the 1990s of a
campaign by a broad coalition of development NGOs, Christian organizations
and others, under the banner of Jubilee 2000. This campaign, involving, for
example, demonstrations at the 1998 G8 meeting in Birmingham, was successful
in pushing debt relief onto the agenda of Western governments and
international organizations such as the International Monetary Fund and
World Bank. Ultimately the Heavily Indebted Poor Countries (HIPC) initiative
was launched to provide systematic debt relief for the poorest countries,
whilst trying to ensure the money would be spent on poverty reduction.
The HIPC programme has been subject to
conditionalities similar to those often attached to IMF and World Bank
loans, requiring structural adjustment reforms, sometimes including the
privatisation of public utilities, including water and electricity. To
qualify for irrevocable debt relief, countries must also maintain
macroeconomic stability and implement a Poverty Reduction Strategy
satisfactorily for at least one year. Under the goal of reducing inflation,
some countries have been pressured to reduce spending in the health and
education sectors.
The Multilateral Debt Relief Initiative (MDRI)
is an extension of HIPC. The MDRI was agreed following the G8's Gleneagles
meeting in July 2005. It offers 100% cancellation of multilateral debts owed
by HIPC countries to the World Bank, IMF and African Development Bank.
Arguments
against debt relief
Opponents of debt relief argue that it is a
blank cheque to governments, and fear savings will not reach the poor in
countries plagued by corruption. Others argue that countries will go out and
contract further debts, under the belief that these debts will also be
forgiven in some future date. They use the money to enhance the wealth and
spending ability of the rich, many of whom will spend or invest this money
in the rich countries, thus not even creating a trickle-down effect. They
argue that the money would be far better spent in specific aid projects
which actually help the poor. They further argue that it would be unfair to
third-world countries that managed their credit successfully, or don't go
into debt in the first place, that is, it actively encourages third world
governments to overspend in order to receive debt relief in the future.
Others argue against the conditionalities attached to debt relief. These
conditions of structural adjustment have a history, especially in Latin
America, of widening the gap between the rich and the poor, as well as
increasing economic dependence on the global North.
Personal
debt relief
Origins
Debt relief existed in a number of ancient
societies:
- Debt forgiveness is mentioned in the
Book of Leviticus, in which God councils Moses to forgive debts in certain
cases every Jubilee year – at the end of Shmita, the last year of the
seven year agricultural cycle or a 49-year cycle, depending on
interpretation.
- This same theme was found in an ancient
bilingual Hittite-Hurrian text entitled the "The Song of Debt Release".
- Debt forgiveness was also found in
Ancient Athens, where in the 6th century BCE, the lawmaker Solon
instituted a set of laws called seisachtheia, which canceled all debts and
retroactively canceled previous debts that had caused slavery and serfdom,
freeing debt slaves and debt serfs.
Contemporary
Personal debt has become an increasingly
large problem in many developed countries in recent years, due to credit
bubbles. For instance, it is estimated that the average US household has
$19,000 in non-mortgage debt. With such large debt loads, many individuals
have difficulty making repayments on debts and are in need of help.
There are many companies who offer debt
consolidation services. However, such services may not always be in the best
interests of the person involved and may involve taking out a loan secured
by a person's home. Marketing materials are designed to persuade customers
to take up the company's offer rather than offering a personal best solution
for reducing debt. Where debt has become a problem, it is often best to turn
to an independent consumer's association for advice before calling debt
consolidation companies as consumer's associations often have great
experience with such problems and may be able to advise the most effective
avenues for debt relief.
As long as some form of Chapter 7
bankruptcy debt relief exists within American law, the credit card companies
must pay attention, and do as much as they can to help their clients repay
debts through relatively traditional means (depending upon the service those
clients have entered). Even leaving bankruptcy aside, it is in the best
interest of credit card companies that their debtors at least feel some
motivation to continue repaying their accounts and not simply disappear or
view those ever growing balances as untouchable.
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