As we are constantly reminded by Jubilee campaigning groups, there are close to 40 highly indebted poor countries worldwide. Here’s a recent article by Jubilee South on Nicaragua for example. The HIPC initiative by the World Bank was launched to help provide debt relief to these poor counties.
Only counties that had complied with IMF requirements in the past were eligible to join and a further raft of conditions were included as part of the relief program. Much of these were focused on maintaining macroeconomic stability, trade liberalization policies and curbing inflation – both factors that contribute to a better business environment overall.
Unfortunately however, many countries were also required to cut public spending which had negative impacts down the line. For example the numbers of doctors and teachers were reduced in many counties on the back of these cuts. The privatization requirement (for example for water supply, electricity provision and other basic infrastructure services) often resulted in higher prices. In many countries service standards improved (but not in all).
When it comes to opening a business in a HIPC country there are both advantages and disadvantages. On the one hand the reduction of an “unsustainable debt burden” is very positive for the country and it’s ability to raise money. Also careful micro-economic management should be welcomed. But some business may also be disadvantaged by the program. Water and electricity costs often rise following privatization and it may be hard to compete with increased imports from other countries coming on the back of more liberalized trade pathways.
Owners with businesses selling quality products that are competitive with the outside world and with enough margin to cover any increased costs of sale would likely support the HIPC program. A good standing with the IMF also bodes well for the relationships with other finance and reconstruction organizations.
