National Responsibility and the Just Distribution of Debt Relief

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The Highly Indebted Poor Countries (HIPC) Initiative is the largest multilateral effort aimed at providing debt relief. According to the World Bank, as of June 2006 "nominal debt service relief of more than US$59 billion has been approved for 29 countries through the HIPC Initiative, reducing their Net Present Value of external debt by approximately two-thirds. Of these countries, 19 have reached the completion point and have been granted unconditional debt service relief of over US$37 billion." (1) In this essay we address the question of whether this program is consistent with a view of justice commonly known as liberal egalitarianism. Liberal egalitarianism holds that agents should be held responsible only for free and informed choices, which in an international context can be understood as saying that a population should be held responsible only for policy choices to which they have given their informed consent. Liberal egalitarianism is an attractive view of justice because it combines two moral ideals that are considered to be fundamental by most people: first, the egalitarian ideal that inequalities resulting from factors outside an agent's control should be eliminated, and second, the liberal ideal that inequalities resulting from factors under an agent's control should be accepted. (2) Liberal egalitarian ethics has implications for many aspects of debt relief policy, including the question of what the overall level of debt relief should be. We focus, however, on its implications for how resources made available for debt relief should be distributed among poor countries.

An important motivation for engaging with these questions is the observation that there is considerable variation in the per capita debt relief given to poor countries in the HIPC Initiative. (Data for the eighteen countries that had completed the program as of the end of 2005 are given in Figure 1.) This variation follows from the fact that the objective of the HIPC Initiative is to bring the debt of the participating countries down to a "sustainable" level. (3) We want to examine whether these differences and the resulting distribution of debt relief is fair. Furthermore, if the distribution of debt relief is judged to be unfair, it is important to ask whether donors compensate by adjusting other aid flows.

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These types of questions are equally relevant for more recent initiatives, such as the write-off begun in 2006 of more than 40 billion U.S. dollars (USD) of debt owed by the poorest nations to the International Monetary Fund (IMF), the World Bank, and the African Development Bank. Within such an initiative, it is important to ask to what extent the resulting distribution of debt relief and aid is just.

The task of achieving a just and efficient distribution of debt relief, and a just and efficient distribution of aid more generally, raises a number of complex challenges. First, one needs to formulate more precisely how to measure a country's overall situation. Second, one needs to take into account a country's effectiveness in applying international aid. And finally, one needs to take into account incentive problems. All these issues have been extensively discussed in the development literature. It is by now well established that a country's per capita disposable income is far from a perfect measure of its status, that countries may use aid more or less effectively, and that the possibility of debt relief in the future might induce countries to undertake excessive borrowing. (4) Nevertheless, in order to achieve a sharp focus on the question of what constitutes a fair distribution of debt relief and aid, we will narrow our framework and avoid detailed discussion of these issues. To simplify, we will take a nation's disposable income per capita to be the relevant outcome, and we will assume that all recipient countries are equally effective in their use of international aid. Furthermore, we will not study the incentive effects of a fair distribution of debt relief and aid. …