Debt is an issue that multiple countries have faced in their history, especially third world countries. Certain countries, especially in the past 30 years, have received aid from the IMF by way of debt which helps their immediate recovery and helps prevent another crisis from occurring. The policies that the IMF proposes and sometimes requests as part of their debt deal have not been always effective. Sri Lanka or Egypt could serve as recent examples. This lack of positive impact may be due to the broad nature of the IMFs current solutions and rules that they impose in order to aid a country. Most importantly, one reason causing lack of such positive impact can be attributed to IMF missing to pay heed to the development and social aspects of a country when implementing these policies, leaving the country worse of  and more susceptible to another crisis. Other inter-governmental organisations have on the other hand created other possible solutions which potentially help in preventing another crisis from occurring and building back the economy, which I will consider, alongside my own policies which I believe are potentially more optimal.

Firstly, I will begin by mentioning the current proposals the IMF has laid out for countries that have suffered from a debt crisis and which need to rebuild themselves to prevent falling into another crisis. The first proposal released by the IMF is a document highlighting countries which are under their Poverty Reduction And Growth Trust. These are all Low Income countries with 45% of them being classed as Heavily Indebted Countries. Within this document the IMF ranks the risk of external debt and also assesses how sustainable their debt levels are. Evidently, the IMF came up with a strategy to track and monitor countries which are likely to fall into huge volumes of debt. Yet whether this is useful depends upon what the IMF can actually do if they see that such affected country has unsustainable debt and is in ‘debt distress’. According to the IMF they are only able to lend to a country if their debt is sustainable. Potential help to countries with unsustainable level of debt comes only in rare cases. This analysis forms the first step in the process. Following such initial assessment, the IMF initiates the next phase which involves supervision of negotiations between the creditors/ lenders and the government of the country in distress. The decision to cancel or reduce any debt repayments is solely up to the creditors/lenders so there is always a risk that such creditors do not perceive the country's situation as severe enough for this to occur. The IMF does provide some aid designed to improve the balance of payments of a country, in the form of a program, yet this is only offered if the country meets certain conidtions. As a result certain distressed countries have failed to qualify for this assistance and those countries who have met the strict conditions, did not actually benefit greatly from the IMF programme and their current account deficits  persisted in spite of such help. This may be partly due to the fact that the money created through improving the economy has gone directly towards paying its creditors rather than being used to improve the society and economic health of the country. Therefore, a key issue with the IMF’s solution and prevention of another crisis is the fact that IMF does not take into account the development and wider economic situation of the country as a consequence of the crisis. This in turn materially increases the risk of another crisis getting triggered leaving such country in a death spiral.

There are other organisations who have created alternative solutions which show positive aspects that the IMF may benefit from adopting. An independent organisation, Eurodad, has created 10 principles they believe should be used when sovereign debt restructurings take place. For example, Eurodad have suggested that firstly all stakeholders and organisations that have provided debt to the country should be involved in the debt restructuring process. In addition, the details of the outcomes of the restructurings and the restructuring process should be made public and transparent throughout to avoid the current closed door nature of such restructurings. Also, the needs of the citizens of the affected countries should always be put before servicing the foreign debt in order to bring a quick improvement to the overall situation in the country . These proposals, alongside several others, are very practical and to an extent non-demanding yet the IMF has not so far considered  using them to make their process more effective.

Another example of an initiative for countries that have high levels of debt is the Excessive Debt Procedure (EDP) created by the European Union. EDP aims at ensuring that the debt within a country do not reach high levels and become excessive. Similar to the IMF, EDP  monitors the debt of EU countries and if the levels either (i) exceed the deficit threshold of 3% GDP or (ii) government debt is above 60% GDP, EDP will take remedial action. Such action involves ensuring that the fiscal policy of the affected country is conducted effectively. EDP can further offer  advice on how to reduce a budget deficit. Any refusal to comply with these remedial actions can  lead to fines and even economic sanctions. Whilst this may be an effective way of ensuring countries do not fall into a debt spiral, the EDP methods are likely to be only useful for developed countries as they are likely to have the funds to pay for any such fines and expertise to change their policies to ensure they do not fall into excessive debt. Thus for developing countries this initiative would only work once their economy is properly built up. The EDP methods in any case offer an optimal solution to  maintaining low levels of debt in the long run.

Finally, I believe that the most effective way of ensuring countries do not fall back into extensive debt and are able to sustainably grow their economies in the fastest way possible is through a debt relief. By removing some but not all debt repayments, the country is able to put such funds to good use.  This can range from an increase in growth due to fiscal/ monetary policies being implemented to improving education or building more hospitals. Putting the money towards valuable sources that provide long term benefits will increase economic growth within these countries and thus increase much needed development. Instead of focusing on paying back the creditors who generally tend to have enough money themselves , but focusing on the socioeconomic state of the country will given an immediate boost to the country's finances and potentially prevent another looming crisis. Whilst such debt relief can result in immediate benefits, I do also agree with the EU’s  EDP policies  that have the potential to lead to sustainable levels of debt to be maintained in the long term time horizon.

Overall, the IMF does not have a fool proof method of prevent debt crises  from occurring and their strategy of aiding economic recovery has proven to be flawed in a number of recent cases. Thus the proposals from the Eurodad offer a good short term fix with possible long term steps also being implemented such as creditors allowing a certain amount of debt to be cancelled and implementing rules that ensure countries do not relapse again. This solution  enables countries to focus more on their development and the socioeconomic state rather than on solely paying back the creditors. They are all effective ways of ensuring debt crises are solved swiftly and prevented early.