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HIPC Debt Relief and Policy Reform Incentives

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  • Jean-Claude Berthélemy

Abstract

In this paper, I discuss the incentives that the HIPC Initiative could create in debtor countries in favour of economic adjustment and reform. The usual debt-overhang argument, stating that debt relief will increase the net benefits of reforms, needs to be revisited in this context. First, the HIPC Initiative does not provide pure debt relief, but also creates new public spending obligations on poverty reduction programmes. Second, not all HIPCs can be considered as enjoying good economic governance, while the debt-overhang argument assumes a welfare-maximizing government.

Suggested Citation

  • Jean-Claude Berthélemy, 2001. "HIPC Debt Relief and Policy Reform Incentives," WIDER Working Paper Series DP2001-105, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:unu:wpaper:dp2001-105
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    References listed on IDEAS

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    1. Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
    2. Cohen, Daniel, 1993. "Low Investment and Large LDC Debt in the 1980's," American Economic Review, American Economic Association, vol. 83(3), pages 437-449, June.
    3. Birdsall, Nancy & Diwan, Ishac & Claessens, Stijn, 2002. "Will HIPC Matter? The Debt Game and Donor Behaviour in Africa," CEPR Discussion Papers 3297, C.E.P.R. Discussion Papers.
    4. Daniel Cohen, 2001. "The HIPC Initiative: True and False Promises," International Finance, Wiley Blackwell, vol. 4(3), pages 363-380.
    5. Elhanan Helpman, 1989. "Voluntary Debt Reduction: Incentives and Welfare," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 580-611, September.
    6. W. Max Corden, 1988. "Debt Relief and Adjustment Incentives," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 628-643, December.
    7. Cohen, Daniel, 1990. "Debt Relief: Implications of Secondary Market Discounts and Debt Overhangs," The World Bank Economic Review, World Bank, vol. 4(1), pages 43-53, January.
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