THE Multilateral Debt Initiative (MDRI) was introduced in September 2005 to operationalise the political outcome of deliberations at the G8 summit in Gleneagles in July that year. The MDRI is to provide 100% cancellation of eligible debt stock owed by eligible countries to four multilateral financial institutions, including the World Bank and the International Monetary Fund (IMF), and is separate from but linked operationally to the enhanced Heavily Indebted Poor Countries (HIPC) initiative.
A critical question arising from these developments in debt relief is whether – aside from relieving the debt overhang of indebted countries and therefore clearing fiscal space for more productive and redistributive expenditure – the cancellation of debt, particularly from the international financial institutions (IFIs), results in greater policy autonomy for the countries concerned.
A significant constraint on national policy space in developing countries in the past two decades has been the uncompromising debt burden shouldered by these countries and the stringent economic policy prescriptions accompanying debt renegotiations and access to financing from the IFIs. However, the recent series of debt cancellations – under both the enhanced HIPC and the MDRI – may offer eligible countries opportunities for expanding domestic policy space, enabling countries greater freedom over their macroeconomic and development policies, including options which were not allowed under the restrictive conditionalities of the Bretton Woods institutions.
This paper examines the key aspects of the MDRI and considers the opportunities this framework and completion of the enhanced HIPC initiative create for indebted countries to expand their policy space.
ABOUT THE AUTHOR
CELINE TAN is a researcher with the Third World Network. She is currently completing her doctorate at the School of Law, University of Warwick, UK, where she previously held a postgraduate research fellowship and where she edits a law journal. She had taught law at Warwick and in Kuala Lumpur, Malaysia.
2. THE MULTILATERAL DEBT RELIEF (MDRI)
Eligibility of Countries
Modalities of Debt Cancellation
(a)IMF debt relief
(b) IDA debt relief
(c) ADF and IDB debt relief
3. MDRI AND POLICY SPACE
Debt, Conditionality and Shrinkage of Policy Space
Post-Debt Relief – Expanded Policy Space?
(a)Loosening the IMF grip
(b)Lessening reliance on World Bank financing
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