The poorest countries are eligible for 100 per cent. debt cancellation on their bilateral debts under the Heavily Indebted Poor Countries (HIPC) Initiative, as well as 100 per cent. debt cancellation on their debts to the World Bank, International Monetary Fund (IMF) and African Development Bank under the Multilateral Debt Relief Initiative (MDRI). The UK is at the forefront of debt cancellation for poor countries and international poverty reduction. We exceed our commitments under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiatives (MDRI), providing the poorest countries with 100 per cent. cancellation on their bilateral and multilateral debts. The HIPS and MDRI systems have cancelled billions of pounds worth of debt and we continue to believe that they are the most appropriate way to tackle sovereign debt problems. Unpayable debts should not hinder the poorest countries from making progress towards the millennium development goals.
All of our loans are made to internationally recognised governments, are bound by legal contracts and are recognised in international law, we do not therefore consider them to be “illegitimate”. We believe that debt relief should be provided on the basis of a country's economic situation rather than their history of poor or corrupt governance. Many countries that have a history of poor governance are now middle-income countries. If we cancelled so-called “illegitimate” debts for such countries, the full cost would have to be met from DFID's aid budget, diverting vital resources away from poorer countries. It is also likely that creditors and investors would take a negative view of the credit worthiness of developing countries in case the loans were later repudiated. This would be damaging for developing countries trying to strengthen their economies and reduce poverty through access to international investment and financing.