Debt relief and fight against extreme poverty : a comparative study of Nicaragua and Cameroon

Abstract

This thesis regards debt relief accorded to poor countries as a means to fight extreme poverty. Indeed, the financial crisis the 1980s and the Structural Adjustment Plans (SAP) imposed upon poor countries by International Financial Institutions (IFIs) left a legacy of widespread poverty and high debt. It is in that context that these IFIs departed from the strict Washington Consensus and proposed debt relief for some Highly-Indebted Poor Countries (HIPC), with the implementation of Poverty Reduction Strategy Papers (PRSPs) which were supposedly inclusive of the countries’ concerns and pro-poor orientated. Now that the Initiative is virtually over, this thesis endeavoured to critically explore its efficacy in terms of poverty reduction with the goal of discovering if the HIPC Initiative translated into significant beneficial outcomes for the poor. Additionally, it sought to discover if there are alternative, tested poverty reduction strategies and how the IFIs should act if confronted with a debt crisis again, with alleviating poverty the true goal. Responses to the problem were reached through a quantitative and qualitative comparative analysis of secondary data from two participating (and fairly close in size) countries, Cameroon and Nicaragua. The use of the Most Similar System Design (MSSD) method during the comparison further allowed the uncovering of a differentiating factor between the Nicaraguan and the Cameroonian PRSPs. Indeed, the Nicaraguan PRSP (contrary to its Cameroonian counterpart) had an Unconditional Cash Transfer (UCT) program embedded into its PRSP. The critical analysis indicated that the PRSPs, just as the SAPs earlier, promoted pro-growth policies covered with a redistributive discourse. Furthermore, the comparative analysis suggested that Nicaragua fared significantly better in terms of extreme poverty alleviation than Cameroon, partly thanks to the use of UCT. Using the Foster-Greer-Torbeck poverty formula, it was then demonstrated that in the case of Cameroon, the funds from the Initiative were enough to eradicate extreme poverty in Cameroon for eight consecutive years through a similar UCT program. The above results strengthen the advocacy for the continuation of UCT programs by Nicaragua and for the implementation of UCT programs by Cameroon using its own resources. They also promote the use of such programs by the IFIs whenever they are confronted with a debt crisis again, with extreme poverty alleviation as their goal.