This notion is false. Developing countries must adopt free-market reforms in order to grow. A Better Plan. The United States should encourage such reform. It is impossible to require countries to funnel the savings from debt relief into domestic programs.
Money is fungible.
Debtor governments can cut spending on social programs even as they comply with creditors' conditionality by allocating debt relief funds to those very same initiatives. Once the creditors forgive debt, they relinquish their influence over a debtor's budgetary decisions. One-time debt forgiveness alone is not a permanent solution to poor country debt. Only by conditioning debt forgiveness on a cessation of future official borrowing and by encouraging poor countries to adopt economic reforms will creditors be able to effect a long-term solution. President Clinton and others rightly champion one of these steps.