Aid And Debt Relief

The history of aid and debt relief stems back to the 1940s when new institutions were created to aid poor countries. The IMF and the World Bank were conceived back in 1944 to help the world economy. The IMF would stabilize and regulate international monetary exchange while the World Bank would lend internationally to facilitate postwar economic development. Additionally, the UN (created in 1945) created a forum for international grievances. The UN played an important role in poverty alleviation, economic growth, and public health. Furthermore, the United States was one of the biggest foreign-aid donors in the 1950s. Then in 1960, the World Bank formed the IDA to provide loans with generous terms to the poorest countries. Many governments in the poor countries welcomed foreign aid and borrowed quite heavily in attempt to industrialize. Unfortunately, many countries were hurt in the 1970s with the rising of oil prices which affected generous aid flows to the poor countries. The IMF attempted to help by offering short term loans to help countries cope with increased oil costs. Sadly, since many countries borrowed at a variable interest rate, higher international rates arose which resulted in higher payments on outstanding debt. As a result, the developing world went into recession, inflation, and devaluation in the 1980s.

The 1980s turned into a debt crisis giving the IMF a new role: lending to countries on the edge of default which was a risky strategy. Similarly, the World Bank initiated its own programs on loans it dispersed to distressed countries. The lack of progress in the debt crisis motivated policymakers to come up with alternative ideas. One idea was the Baker Plan created by James Baker, U.S. Treasury Secretary under President Reagan in 1985. Baker called upon IFIs to increase lending to developing countries by 50%. Unfortunately, this plan was monitored for 5 years with little to no growth in the poor countries. The next plan was