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conceptual mapping >  globalization and international relations  > Debt and Conditionality: Multilateral Debt Relief Initiative and Opportunities for Expanding Policy Space

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Debt and Conditionality: Multilateral Debt Relief Initiative and Opportunities for Expanding Policy Space

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> TWN Global Economy Series no. 9, 2007, 28 p., US$8.00

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.

date of on-line publication : 22 May 2007

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