Although the present situation cannot be compared with that of 1953, it has to be considered that the debts of the Federal Republic of Germany were cancelled to a large extent under the London Agreement on German External Debts. This created an important prerequisite for the reconstruction of Germany. We want to help implement the corresponding political will particularly with regard to today's indebted poor countries. We gratefully recognise that the on-going initiative of the World Bank and the International Monetary Fund for the highly indebted poor countries is making real progress towards an international policy for the reduction of indebtedness. Although these agreements are still not satisfactory and need improvement, and although so far only a small number of countries have profited from them, they are a suitable starting point for further efforts.
Excessive debt is still one of the most important obstacles to development for many poor countries.
However, it must not be seen as an isolated problem. Excessive debt is part of a vicious circle from which many countries can barely escape. Strong population growth, low savings rates, low levels of real capital, a low level of general education and vocational training, and unsuitable political and social institutions lead to a low production result, that in turn does not allow the so-important capital to be formed. High inflation rates, wrong exchange rates, the lack of an institutional framework for economic activity, excessive government intervention and foreign debt keep the vicious circle in motion, and this has to be broken if economic development is to succeed. It is therefore essential that the debtor countries use debt relief to effectively combat the real causes of economic instability and social misery.