Forum : General Assembly 2

Appointed representants: ANDRE Maxence, COTTET Hoang Alice, NGUYEN NU To An

Topic 3 : The question of conditionality of debt relief for developing

nations

I. Introduction to the Topic

The notion that a country is indebted to another nation has existed for a long time, but since
globalization and expansion of trade deals amongst nations. On an international scale, this notion has become
more and more prominent as the world develops into a more globalized economy. One in which nations are
becoming more dependent on trade deals and investment from foreign countries. Due to this, many
underdeveloped countries seek out help and investments from already developed nations, via loans . Debts as a
whole is not a negative thing for a country can thrive while taking in investments from others, but for many, it
becomes a problem when these debts are due and are unable to be paid off.

Often the issues that arise from unpaid debts can be on a regional scale , as when a nation financially
struggles due to debts or simply financially struggles due to a multitude of reasons. It would create a domino
effect that would infect other nations within the region , causing a staggering in the economy of the region . A
prime example of this in motion would be the Asian financial crisis of 1997 , in which there was a devaluation
of Thailand’s currency. The devaluation of the Thai Baht caused many other nations such as Malaysia and even
South Korea to be faced with an extreme amount of pressure. With some countries being even at risk of
defaulting.

Nevertheless , even if issues dont arise regionally , they would always be issues on a national scale . As
whenever a nation is unable to pay off its debts , economical turmoil would often arise . Such as a stagnation of
the economy which would limit a nation's growth. Due to their inability to repay their dues , these nations
would never have the opportunity to develop and properly enter the global market , having lacking funds and
the inability to develop their economy. Leading many to become vulnerable and forever stagnant in their
positioning and development.
 Then on a local scale , debts can play a major role in the functioning of a nation or province and be
impactful in the day to day life of the citizens of a country. It is possible for a local government to rack up debt
via the borrowing of loans , and while these debts can have a positive effect , improving local livelihood as well
as infrastructure due to an increase in resources. They could become detrimental in the long run whenever said
local governments become unable to pay them off and accumulate too many debts. Often when a threshold of
debt is met , a suppression of the economy would often follow suit. This would result in a worsening of the area,
such as the livelihood of the citizens .

As of today, the world is $315 trillion in debt, having increased dramatically over the years, prominently
due to the recent pandemic which caused a surge of borrowing amongst nations. With a part of it belonging to
some of the poorest nations in the world, those who are incapable of repaying said debts. For this, many nations
believe it is a necessity to relieve the debts of some of the poorest in the hopes of helping them prosper. While
the endeavor is feasible, debt relief is for many an insurmountable task that requires an enormous amount of
funding of some of the most developed economies in the world.

II. Definition of Key Terms & Concepts

Debt-Trap Diplomacy: Debt-trap diplomacy is a form of relationship built upon debt , in which the creditor
country or institution extends the debt to a borrowing country in an attempt to increase political leverage. This
is done to the point that the borrowing country would often repay the creditor country via the purchase of goods
or services. Currently , China is the biggest country to employ dept-trap diplomacy , it does this through its Belt
and Road Initiative or BRI , in which it has given out a total of $1 trillion .

Creditor Nation: A creditor nation is a nation in which its Net International Investment Position (NIIP) is
positive .Meaning that the country is one that has invested and lended more to foreign nations than they have
borrowed This often gives a nation leverage over debtor nations due to it owning a part of its assets . The title of
creditor nation is not a permanent one , as it could be taken away when the liabilities of a nation exceeds its
owned assets. When this happens it becomes a debtor nation , such as is the case with the US.

Debtor Nation: A debtor nation is a nation in which its Net International Investment Position is negative. It is
the antithesis of a creditor nation meaning that the country has more liability than owned assets of foreign
countries. Often this is due to a trade deficit , in which the nation is unable to produce enough goods and
therefore has to rely on importation of said goods. It is commonly the case for countries whose economy is
growing at a rapid paste.

Net International Investment Position ( NIIP): The term Net International Investment Position refers to the
difference between the foreign assets a nation has compared to its foreigner’s liability . It is used to determine
how much foreign aid and investment it has received compared to how much it aids foreign countries. This
difference is very useful when it comes to establishing the position of each country , as well as give an idea of
the exchange rate of their currency.

Emerging Markets and Developing Economies ( EMDE): An Emerging Market and Developing Economy
refers to nations who are integrating into the global market , and are showing signs of a developed market .
Some signs of an EMDE are a fast growing GDP as well as a growing income per capita. Often these emerging
markets are sought after by developed nations and are invested in , in the hopes of getting higher returns when
the nation finally finds its footing and is able to repay its loans. While this can help nations fund projects and
get the nation on the right track , it is considered a high risk high reward scenario due to the fact that a nation
could be unable to repay its debts/

III. Key Stakeholders

The World Bank

Established in 1944 , the World Bank is an international financial institution whose main purpose is to
provide financial aid to low and middle income countries , these are mainly in the form of loans and grants and
they are often solely distributed to fund projects of a grand scale. As of today 170 different countries constitute
it , with 130 bases around the world. It is one of the major key players when it comes to debt relief as it is often
seen as the key financier of projects aimed towards impoverished nations. It has as well partaken in a multitude
of different projects and initiatives that aligns with their goals and key values. The most notable one being a
collaborative project with the IMF , the HIPC initiative. While the World Bank has done a great ordeal of good
in the fight against debt , it as well has its fair share of issues . It has been criticized for promoting inflation and
other economic issues in its policies , for the poor response it had during the 2020 pandemic , and most notably
of all , the Washington Consensus , an economic reform implemented by the World Bank and the IMF amidst
the first wave . It still had a positive outcome overall with a reduction in poverty and a stabilization of the
economy in Latin America , yet it came at the cost of severely weakening trade deals . And while the outcomes
were still positive overall , the impacts that it left are still considered undesirable as many believe the consensus
was incomplete in nature.

The International Monetary Funds ( IMF) and its members

Founded in 1944 by 44 nations, the IMF is today one of the major organizations that seeks to help out
nations in their monetary issues by supporting as well as monitoring the implementation of economic policies
that promote financial stability and monetary cooperation . Today it is composed of 190 member nations and
works closely with the World Bank . They are an important stakeholder when it comes to debt relief as together
with the World Bank , has launched the Heavily Indebted Poor Countries ( HIPC ) initiative , which seeks to
alleviate and ensure that no nation would have unmanageable debt. As of 2007 , IMF made it so that HIPC was
supplemented by the Multilateral Debt Relief Initiative . And that it would as well receive aid from IDB , with it
providing additional debt relief to the five HIPCs of the Western Hemisphere. However an issue that arises
when it comes to funding , as part of its funding comes from the willingness of donors to donate to the initiative
and organization. Ultimately leading to a lack of resources , and a lack of aid when it comes to larger
beneficiaries that require or seek funding , or are unable to qualify for the program whilst still being in need of
financial aid.

The Inter-American Development Bank ( IDB) and its members

Composed of 48 member countries, 26 of which are borrowing countries whilst the other 22 are non
borrowing countries , is an organization that plays a vital role for western countries due to the fact that it mainly
focuses on the eradication of poverty within the western hemisphere. Founded in 1959 , it is the main source of
development financing in Latin America and the Carribeans. The organization often sends borrowing members
financial aid , and as of 2023 , helped alleviate the debt of five member nations . These nations are Bolivia ,
Guana , Haiti , Honduras and Nicaragua.Whom have received a total of $3.14 billion , as well as an extra $1
billion for future interest payments . As of today it plays a vital role in the fight against foreign debt , lending
financial aid to the HIPC initiative alongside the Inter-American Investment Corporation ( IIC ) and the
Multilateral Investment Fund ( MIF ) , who together form the IDB group. Nonetheless it still faces certain
blocades , notably funding issues , as it mainly finances itself via low cost bonds that are backed by loans that
the IDB makes ,trust funds and cofinancial ventures, which ultimately limits its impact .

China

As of now China is the biggest creditor nation to utilize debt-trap diplomacy , as of today China has at
least 57 different countries out of the 165 it has funded indebted to it , with all of these nations combined owing
at a minimum $1.1 trillion. With some of these countries owing upwards of $26+ billion to China . Moreover ,
as time goes on , more and more of these loans would leave their grace period and enter in full swing , the
amount of debtors to China would increase. As of November 2023 , only 55% of these loans have left their
grace period. These numbers would only increase as time goes on as every year China sends out loans and
funding for the construction of infrastructure as well as other projects. With an important number of these
lendings heading towards low and middle income countries . Meaning that when the grace periods of these
loans end , a great ordeal of the EMDEs that took part in borrowing aid from China would be placed under a
great amount of pressure .However these lendings are at the current moment decreasing as the years go on .

G20

The G20 are the world's 20 richest nations. These nations play a major role when it comes to debts and
debt relief as they are the major financiers of projects that help alleviate debt or outright relieve debt. They are
as well the nations that are most likely to be creditor nations , meaning that they are the nations who have other
nations indebted to it, with some exceptions. Approval from them is necessary when it comes to furthering debt
relief as without them most plans and organizations would be unable to fund all major initiatives. As of the
pandemic of 2020 , they played an even more major role than before by freezing the debt service payments of
the 73 poorest countries. Ultimately giving an extension to many nations that were in need of one.

EMDEs

EMDEs are nations who are entering the global market , and are showing signs of a rapidly growing
economy , due to this many are in need of financial support from other nations in order to meet the requirements
of their people and the nation. Which is something that is easy to obtain as many creditor nations are often
interested in them. This often leads many to enter the role of a debtor nation, which is not a negative status . But
issues arise when said debtor nations do not develop properly and are incapable of entering the global market,
or are preyed upon by creditor nations and are forced into a debt-trap diplomacy. Upon entering said scenarios ,
these nations will be faced with insurmountable debt that they would be incapable of paying off within a
feasible time frame without the aid f foreign help. This could in turn impede a nation's economic growth and
stagnate all forms of progress , leading to a perpetual cycle of needing foreign aid to get out of debt and then
getting into more debt.

IV. Key Issues Including Background Information

Resources and Funding

Often resources are the key cause for countries falling into debt as well as the reason why they are
unable to escape it . It is not uncommon for EMDEs to often resort to going into debt as a means to satisfy their
rapidly growing economy as well as developing nations. Going into debt is an essential factor for growth in
today's age, as nations do not have at all times the funding needed to expand. However it is also not uncommon
for these nations to then be hit with the negative effects of debts whenever they accumulate too much of it.
Whenever a country wishes to be relieved of debt , it is a necessity for it to obtain foreign aid , often in the form
of grants and financial support. And this is where the issue of resources and funding come in , as often these
aids come from organizations who rely on donations, ultimately limiting their capabilities.

Debt Trap Diplomacy

Debt Trap Diplomacy is a tactic used by certain nations to gain an advantage as well as control over
others via leveraging debts to their benefits . It is as of today a major issue that touches many EMDEs and
LEDCs with many of them having lost much of their control over their own nations . With many ledding off
land , points of interest , human resources and much more to creditor nations in the hopes to pay off their debts.
As of today the current biggest nation to utilize debt trap diplomacy is China . It is important to note that one of
the key reasons why so many nations are indebted to China is due to the Belts and Roads Initiative(BRI) , a
project to rekindle the silk road back in 2010 which required enormous amount of funding from every nation
involved , which lead many to take up chinese loans .
V. Timeline of Resolutions, Treaties and Events

Date Description of event

The creation of the both the IMF and the World Bank who will later down
1944 the line work in tandem to play a major role in the fight against debt via the
financing of some of the poorest nations in the world

A heavy build up of government debt amongst EMDEs caused by an

excessive amount of borrowing , as well a real low interest rate which
1980s caused the appearance of the first wave. As well as the creation of the
Washington Consensus by both the IMF and the World Bank (1989)

Liberalization of the capital market led many banks, corporations as well as

governments in Europe and Central Asia to borrow heavily , leading to
1990s many financial crises in said region. This event was aptly named the second
wave .

The private sector overborrowed loans from EU-headquarters “mega-banks”

2000s which led to a global financial crisis and a debt crisis amongst several
economies within the European zone. The third wave

The beginning of the Belt and Roads Initiative by China which caused many
nations to take up excessive amounts of loans from China to fund the
2010s projects , leading many to later on be indebted to China. It is as well the the
period of which the fourth wave started to form , one that is considerably
more frightening than the previous waves due to it’s more global reach.

The pandemic caused by the Wuhan virus led to an overborrowing , causing

2020 an increase of debt amongst many EMDEs. It as well amplified the fourth
wave , ultimately worsening the impact that it would leave
 VI. Possible Challenges and Solutions

Funding and Resources

A key issue when it comes to debt relief is resource management as many programs and initiatives rely
on funding from a multitude of sources to help relieve debt in many impoverished nations . Such as the HIPC
initiative which due to a lack of funding and resources is unable to help countries of bigger sizes as well as
make bigger impacts to other countries. It is as well the same issue many EMDEs experience as it is as well the
root of debts, many nations do not have the proper resources to grow or advance their economy and often rely
on loans from creditor nations.

Debt-Trap Diplomacy

The biggest issue when it comes to debt, and more importantly when it comes to debt with China . As
many nations are unable to pay off loans taken from the creditor nation , they would be taken advantage of in a
multitude of ways. Often the “repayment” would be done by leasing out certain parts of the nation , whether it
be land , ports , military bases , or in the case of Laos the entire electric grid of the nation.

Loan and Grant Policies

A proper framework as well the implementation of certain key policies could substantially help many
EMDEs . As it could aid in the regulation on how creditor nations invest in lesser economically developed
nations , as to not place them into a position of too much debt , or to prevent the implementation of certain
dangerous clauses when it comes to lending out loans . Helping to prevent debt trap diplomacy .

VII. Recommendations for Resolution Writing Including Research

Delegates are encouraged to be knowledgeable on the current financial situation of their nation , NIIP
standing, its association or associations to certain initiatives and key stakeholders, debts , loans and trade deals.
As well as the current global financial status , interest rate , recession . It is also advised for delegates to be
aware of current actions done by the key stakeholders , whether it be the IMF , World Bank , IDB and their
current plans on combating debt . Or China and its current investment goals , loans and debts , as well the
current EMDEs whose loans have passed their grace period and are now becoming an issue for many debtor
nations.

While drafting resolutions , delegates should consider the role and position their nation has on the topic
of debt , whether they would like to help relieve it or not , as well as the major challenges faced when it comes
to relieving debt , whether it be funding issues or opposing ideals, Furthermore it is advised that delegates take
into account the current status of certain key EMDEs who have already been given financial aid , and to observe
their current financial and economical conditions . Notably that of Somalia and their current achievements when
it comes to debt relief. So that they can then implement policies that would take into account the actions needed
to relieve debt.

VIII. Bibliography

“The Effect of Local Government Debt on Regional Economic Growth in China: A Nonlinear
Relationship Approach” Article by Rubo Zhao, Yixiang Tian, Ao Lei, Francis Boadu and Ze Ren.
https://www.mdpi.com/2071-1050/11/11/3065

“Global debt has grown to $315 trillion this year-here’s how we got here” Article by CNBC
https://www.cnbc.com/2024/05/29/global-debt-has-grown-to-315-trillion-in-2024.html#:~:text=The%20world%
20is%20mired%20in,with%20the%20Covid%2D19%20pandemic.

“Debt relief under the heavily poor countries(HIPC) initiative” IMF

https://www.imf.org/en/About/Factsheets/Sheets/2023/Debt-relief-under-the-heavily-indebted-poor-countries-in
itiative-HIPC

“ Multilateral Debt Relief Initiative -Questions and Answers” IMF

https://www.imf.org/external/np/exr/mdri/eng/index.htm

“ What has been the impact of Covid-19 on debt?” Research paper by the World Bank
https://documents1.worldbank.org/curated/en/801991638297695658/pdf/What-Has-Been-the-Impact-of-COVI
D-19-on-Debt-Turning-a-Wave-into-a-Tsunami.pdf

“ The fourth wave : a ripple or a tsunami” Research paper by the World Bank
https://thedocs.worldbank.org/en/doc/771461575650678441-0050022019/original/DebtChapter4.pdf

“ Developing countries owe China at least $1.1 trillion- and the debts are due” Article by CCN
https://edition.cnn.com/2023/11/07/business/china-bri-developing-countries-overdue-debt-intl-hnk/index.html#:
~:text=AidData%20says%20Beijing%20never%20had,financial%20distress%2C%20its%20data%20shows

“ The role of the International Monetary Fund in a changing global landscape” Article by the CSIS
https://www.csis.org/analysis/role-international-monetary-fund-changing-global-landscape

“Debt : evolution , causes , and consequences “ Research paper by the World Bank
https://thedocs.worldbank.org/en/doc/377151575650737178-0050022019/original/DebtChapter1.pdf

“How can low-income countries cope with the coronavirus debts?” Article by the Council on Foreign
Relations
https://www.cfr.org/article/how-can-low-income-countries-cope-coronavirus-debt

“ Somalia has reached its debt relief milestone. Now the real work begins” Article by the Guardian
https://www.theguardian.com/world/commentisfree/2023/dec/13/somalia-has-reached-its-debt-relief-milestone-
now-the-real-work-begins
“ How a Chinese company took control of an entire nation’s electrical grid “ Article by the World
https://theworld.org/stories/2020/09/30/how-chinese-company-took-control-entire-nation-s-electrical-grid

IX. Additional Resources

“IDB annual report” IDB 2007 annual spending report

https://publications.iadb.org/en/publications/english/viewer/Inter-American-Development-Bank-Annual-Report
-2007.pdf

“The top 20 countries indebted to China” Article on the Visual Capitalist , written by Marcus Lu
https://www.visualcapitalist.com/ranked-the-top-20-countries-in-debt-to-china/

“World’s poorest countries get debt relief from G20” Broadcast by Reuters
https://www.youtube.com/watch?v=tInZsnS2Xzc

“IMF approves immediate debt relief for 25 countries” New report CGTN
https://www.youtube.com/watch?v=sDe_KgVHxhA
 “Gravitas Plus : The Belt and Road Initiative” Broadcast by WION
https://www.youtube.com/watch?v=Rjx1iuY9D2s

“Washington Consensus” Article by Britannica Money

https://www.britannica.com/money/Washington-consensus