How Did Highly Indebted Poor Countries Become Highly Indebted? Reviewing Two Decades of Debt Relief
How Did Highly Indebted Poor Countries Become Highly Indebted?: Reviewing Two Decades of Debt Relief

November 1999 - Theoretical models predict that countries with unchanged long-run savings preferences will respond to debt relief by running up new debts or by running down assets. And there are some signs that incremental debt relief over the past two decades has fulfilled those predictions. Debt r...

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Bibliographische Detailangaben
1. Verfasser: Easterly, William (VerfasserIn)
Format: Elektronisch E-Book
Sprache:English
Veröffentlicht: Washington, D.C The World Bank 1999
Schlagworte:
Amount Of Debt
Banks and Banking Reform
Commercial Banks
Currencies and Exchange Rates
Debt
Debt Markets
Debt Payment
Debt Relief
Debt Service
Debt Servicing
Debt-Service
Default
Discount
Discount Rate
Economic Theory and Research
Emerging Markets
External Debt
Finance
Finance and Financial Sector Development
Financial Literacy
Foreign Debt
Foreign Loan
Foreign Loans
Forgiveness
Good
Indebted Countries
International Economics & Trade
Macroeconomics and Economic Growth
Private Sector Development
Productive Investments
Strategic Debt Management
Third World Debt
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Volltext
Zusammenfassung:November 1999 - Theoretical models predict that countries with unchanged long-run savings preferences will respond to debt relief by running up new debts or by running down assets. And there are some signs that incremental debt relief over the past two decades has fulfilled those predictions. Debt relief is futile for countries with unchanged long-run savings preferences. How did highly indebted poor countries become highly indebted after two decades of debt relief efforts? A set of theoretical models predict that countries with unchanged long-run savings preferences will respond to debt relief with a mixture of asset decumulation and new borrowing. A model also predicts that a high-discount-rate government will choose poor policies and impose its intertemporal preferences on the entire economy.
Reviewing the experience of highly indebted poor countries, compared with that of other developing countries, Easterly finds direct and indirect evidence of asset decumulation and new borrowing associated with debt relief. The ratio of the net present value of debt to exports rose strongly over 1979-97 despite the debt relief efforts. Average policies in highly indebted poor countries were generally worse than those in other developing countries, controlling for income. The trend for terms of trade was no different in highly indebted poor countries than in other developing countries, not were wars more likely in highly indebted poor countries. Over time there has been an important shift in financing for highly indebted poor countries, away from private and bilateral nonconcessional sources to the International Development Association and other sources of multilateral concessional financing. But this implicit form of debt relief also failed to reduce debt in net present value terms.
Although debt relief is done in the name of the poor, the poor are worse off if debt relief creates incentives to delay reforms needed for growth. This paper - a product of Macroeconomics and Growth, Development Research Group - is part of a larger effort in the group to study the effectiveness of aid for growth. The author may be contacted at weasterly@worldbank.org
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