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Debt Relief
Abstract
Debt relief has become the feel-good economic policy of the new millennium, trumpeted by Irish rock star Bono, Pope John Paul II, and virtually everyone in between. But despite its overwhelming popularity among policymakers and the public, debt relief is a bad deal for the world's poor. By transferring scarce resources to corrupt governments with proven track records of misusing aid, debt forgiveness might only aggravate poverty among the world's most vulnerable populations.
... One reason is that HIPC countries have been able to secure lending even as their debts are being written off. In fact, Easterly (2001) notes that HIPC countries, to whom roughly $50 billion of the $100 billion in debt forgiveness has been granted from 1989 to 2003, borrowed enough new funds during the 1980s and 1990s to offset past debt forgiveness (Easterly [2001] 21-22). This undermines the argument that indebted countries face a liquidity problem and are directing money to interest payments at the expense of development ends. ...
... Furthermore, since money is fungible, "debt relief goes into the same government account that rains money on good and bad uses alike" (Easterly [2001] Continued borrowing by debtors and corruption in debtor countries are only two complications in the deployment of debt forgiveness. Chauvin and Kraay (2005) also point to the interaction of aid flows with debt forgiveness flows as a factor that could potentially contribute to debt forgiveness's failure to address debt overhang problems. ...
... A third reason that could explain the insignificant impact forgiveness has had on credit ratings is that if debtor countries are able to secure new borrowing regardless of their indebtedness, the provision of credit would not depend on debt levels and consequently debt forgiveness would not affect credit ratings. Easterly (2001) it is too much to argue that credit is provided regardless of debt levels. ...
Although debt forgiveness for developing countries has claimed an increasingly prominent role in development policy, its efficacy remains in question. This study examines one particular goal of debt forgiveness: encouraging external investment by easing the incentive problems associated with large debt stocks. I assess the impact of debt forgiveness on creditor sentiments, using Institutional Investor sovereign credit ratings as a proxy for creditor outlook. Using a dataset of a broad sampling of developing countries over the last twenty-five years, I find that although large external debt stocks have a significant negative effect on credit ratings, debt forgiveness has not had any significant impact in improving them, likely as a consequence of significant reborrowing by developing countries and larger aid flows outside of debt forgiveness.
... Second, debt relief can create perverse incentives for debtor countriesby relaxing budget constraints, debt relief may induce governments into prolonging bad economic policies (Easterly, 2001a). Third, rewriting debt contracts may hurt a debtor's reputation and hinder its ability to obtain future loans (Easterly, 2001b). ...
... In a companion paper, we demonstrate that the collective action problem is not the primary obstacle to growth in the HIPCs (Arslanalp and Henry 2002). Rather, the principal obstacles are a lack of basic institutions and social infrastructure, problems that debt relief is unlikely to solve (Easterly 2001b) Debt relief has become synonymous with the HIPCs, but a number of middleincome developing countries are also substantially indebted (Easterly 2001b;Birdsall and Williamson 2002). Furthermore, Section VI of this paper shows that these middleincome countries bear far greater resemblance to the Brady countries than do the highly indebted poor countries. ...
... In a companion paper, we demonstrate that the collective action problem is not the primary obstacle to growth in the HIPCs (Arslanalp and Henry 2002). Rather, the principal obstacles are a lack of basic institutions and social infrastructure, problems that debt relief is unlikely to solve (Easterly 2001b) Debt relief has become synonymous with the HIPCs, but a number of middleincome developing countries are also substantially indebted (Easterly 2001b;Birdsall and Williamson 2002). Furthermore, Section VI of this paper shows that these middleincome countries bear far greater resemblance to the Brady countries than do the highly indebted poor countries. ...
The stock market appreciates by an average of 60 percent in real dollar terms when countries announce debt relief agreements under the Brady Plan. In contrast, there is no significant increase in market value for a control group of countries that do not sign agreements. The results persist after controlling for IMF agreements, trade liberalizations, capital account liberalizations, and privatization programs. The stock market revaluations forecast higher future net resource transfers and GDP growth. While markets respond favorably to debt relief in the Brady countries, there is no evidence to suggest that current debt relief efforts for the Highly-Indebted Poor Countries (HIPCs) will achieve similar results.
... So, finally to alleviate this problem debt relief was suggested as a final way to development (Easterly, 2001). The two main aims of debt relief is to avoid any hindrances to development and shift resources from debt servicing to productive activities such as in public investment. ...
... The existing literature on the wide implications for development and transcending the economic impacts and touching social and ecological effects is scant. Easterly (2001), in another study, has investigated whether debt relief has made the poor better off. He argues that debt relief worsens poverty since it is not the poor people but their governments who owe debt. ...
Abstract Based on data from 14 Highly Indebted Poor African Countries that received debt relief during the decade 1990-2001 (relief decade) the study examines whether this relief was followed by significant improvements in the countries’ development in subsequent years (2000-2004). Using a comparative and econometric approach this paper found that the countries which received the highest relief actually experienced a reduction in their per capita income in subsequent years where as improvements in growth in some of the countries was not necessarily caused by the relief. The paper also shows that real GDP per capita growth rates declined in the largest relief recipient. Another finding of this paper is that those countries with the lowest share in the debt relief showed some improvements which suggests that a significant increase in per capita income could occur without the provision of great debt relief to a HIPC. In addition, even if the freed resources were used for social services such as schooling and health care this had little developmental effects indicating that the resources were not properly directed to productive activities. Thus this paper emphasizes that debt relief is not a sufficient condition for having growth. Debt relief could be correlated with growth but evidences for causation are scant. The research presents evidence that debt relief by itself did not bring about growth in the sub-Saharan sub-continent as doubling amounts of debt relief was followed declining growth rates.
... This challenge arises from gametheoretic studies that rely on political economy assumptions, especially studies regarding the democratic peace and international efforts at nation-building. In both areas, the political-economy perspective, like realism in other arenas, offers not only analytic insights but also practical, accessible policy guidance to decision makers (e.g., Bueno de Mesquita and Downs, 2005;Drezner 2004;Easterly 2001Easterly , 2002). While explaining the democratic peace's empirical regularities, it also offers a cautionary tale for those who infer that because pairs of democracies tend to interact peacefully, therefore democracies have incentives to promote global democratic reform. ...
James Russell and Quincy Wright suggested in the Review in 1933 that the danger of conflict could be diminished by looking within states to discern what contributes to the risk of war. Revolutions in game theory technology and political economy modeling are helping to advance those goals. The combination of non-cooperative game theory as an analytic tool and the assumptions of political economy models about leaders' domestic interests and incentives offer a different explanation of international relations from that suggested by realist theories and other state-centric viewpoints. Together with more macro-level theorizing we gain insights into what makes some polities more prone to international conflict than others. By adding the micro-level, game theoretic investigation of domestic factors to the analytic repertoire we have now supplemented the aspects of received wisdom that are consistent with the record of history with explanations for puzzling facts about conflict that no longer seem anomalous.
... For example, Ontario, the perpetual 'have' province that receives no payments, has the lowest (provincial plus local) government per capita spending of any province in Canada, while Newfoundland/Labrador, a perennial equalization recipient, spends $2,351 more per person than Ontario. 2 This finding is consistent with other investigations reporting that decoupling revenue sources (equalization transfers) and spending from local taxation results in larger government spending as the "local" tax-price of services is lowered ( Hines and Thaler 1995;Winer 1983). It is also consistent with international development literature that suggests providing debt relief to the world's poor governments aggravates poverty (Easterly, 2001) and promotes the expansion of government (Remmer 2004). ...
A fundamental governance challenge for federal states is finding a way to capture the benefits of decentralization, while addressing potential negative side-effects, including vertical and horizontal imbalances. Fiscally induced migration—the inefficient mobility of resources due to differential net fiscal benefits in sub-national units is one such potential negative side-effect of decentralization. In this paper we offer an assessment of equalization payments in Canada in terms of their influence on marginal influence on inter-provincial migration, after accounting for the persistent relative attractiveness (unattractiveness) of provinces as migration destinations/origins. Our findings suggest that at the margin, equalization has virtually no impact on net migration. JEL: H77, R51 *We thank Stanley L. Winer for his very helpful comments and suggestions on an earlier version of this paper.
An important driving force for the rapid development of China’s economy is rapid urbanization. In 1949, only 10.6% of China’s population lived in cities. In 2019, China’s urbanization level reached 60.6%. According to the experience of industrialized countries, it is estimated that by 2035, about 70% of China’s population will live in urban areas. In 2050, this proportion will rise to around 80%.
The ocean is fundamentally important for humankind. Simply stated, the ocean helps us breathe, regulates our global climate, and slows down the rate of global warming by absorbing 40% of anthropogenic carbon dioxide.
In 2018, China Council for International Cooperation on Environment and Development (CCICED) launched a Special Policy Study (SPS) project called Ecological Compensation and Green Development Institutional Reform in the Yangtze River Economic Belt (YREB), which aimed to solve the problem of how to construct ecological compensation mechanisms and implement green development system reform in the context of ecological protection and sustainable development. Through two years of project research, the research team has conducted in-depth studies on ecological compensation and green development system reform in the YREB and submitted specific and operable policy recommendations to promote ecological compensation and green development in the region. In 2020, the project will continue to deepen the research on reform of the YREB and green development. It will examine how to solve the lack of ecological compensation standard and green financial innovation by focusing on innovative research into natural ecological capital accounting (NECA) and an eco-financing mechanism (EFM), and their application in policy practices. It will provide scientific support for the strategic development and decision-making mechanism of YREB as well as in the Yellow River basin.
This open access book is based on the research outputs of China Council for International Cooperation on Environment and Development (CCICED) in 2020. It covers major topics of Chinese and international attention regarding green development, such as climate, biodiversity, ocean, BRI, urbanization, sustainable production and consumption, technology, finance, value chain, and so on. It also looks at the progress of China’s environmental and development policies，and the impacts from CCICED. This is a highly informative and carefully presented book, providing insight for policy makers in environmental issues.
Debt relief has been controversial due to its potential to reward irresponsible behavior by debtor governments. Recently, however, observers note that debt relief might also induce irresponsible behavior by creditor governments. A collective action problem might exist, where creditor governments target new loans to developing countries that just received debt relief from a different creditor. I investigate if debt relief affects decisions by creditor governments to provide new loans. Additionally, I analyze which types of creditor governments are more likely to lend to recipients of debt relief. I find that China and other emerging creditors are not more likely to lend to recipients of debt relief than western creditor governments. Instead, creditor governments of smaller economies are more likely than those of larger economies to free-ride on debt relief provided by other lenders. If states lend to gain influence, larger lenders will typically crowd out smaller creditors. However, if a debtor state just received debt relief and is therefore viewed as a greater risk, small creditors may see an opportunity to gain influence by providing a loan that no other state wants to provide.
Stabilization seeks to achieve internal and external equilibrium that is, to control the demand side of the economy, with the purpose of reducing size of government, inflation and quickly achieving a sustainable balance of payment position. In this paper, I investigated the impacts of HIPC initiative and debt relief on economic growth and economic stability in Africa. I also identify the determinants of economic performance using the World Bank data for the period 1990–2015 with 5-year panels. The results show that this initiative causes economic instability in Africa. The results also indicate that the long run effect of debt relief on economic growth is positive but in the short run debt relief has no significant effect on GDP per capita growth. However, in both the short run and the long run, debt relief reduces external balance on goods and services deficit and has no effect on inflation. The main determinants of economic performance in Africa are control of corruption, political stability, regulatory quality and education. In this perspective, governments of African countries should promote good governance, educate their population and revise trade agreements to provide insurance for economic growth and economic stability.
The purpose of this article is to analyse the impact of debt relief programs on poverty reduction in Bolivia by focusing on the enhanced HIPC initiative. As this initiative tries to reduce poverty in a decentralized way, I concentrate my analysis on the link between poverty reduction and the enhanced HIPC initiative resources at the municipal level. In order to do that, I study the specific impact of debt relief on the evolution of two poverty indicators (the schooling and achievement rates) over the 2001-2005 period. I conclude that the released resources under the enhanced HIPC initiative did not affect the evolution of these poverty indicators over the period.
Implementation of the Sustainable Development Goals (SDG) marks a shift in the priority of the UNDP from tackling poverty to tackling climate change. This shift erodes the ability of the UNDP to perform its primary function of providing development assistance to poor countries. The climate finance proposal is unlikely to change this fundamental defect in the SDG initiative of the UNDP.
In order for global companies to be economically successful they must be able to export their goods. Export Credit Agencies (ECAs) assist global companies with their exports to developing countries by providing trade financing for exports that otherwise might not occur due to the risk of non-payment. However, much of the bilateral debt of developing countries is held by ECAs, debt that is often rescheduled through Paris Club negotiations. Since structural adjustment policies devised by the International Monetary Fund are required by Paris Club creditors in order for loan rescheduling of developing country debt, what role do the Bretton Woods Institutions play in assuring that these debts are repaid? The purpose of this chapter is to examine how global companies' exports are facilitated by ECAs and to show how the interests of the IMF and its powerful member states converge in Paris Club debt rescheduling. This edition first published 2013
Proponents of the foreign aid option believe that African countries are trapped in poverty. Mothers are dying in childbirth, children are starving, the masses are illiterate, and this massive humanitarian crisis can only be broken by large amounts of foreign aid. Critics of the World Bank and IMF imposed structural adjustment policies believe that the privatization of the economy, the elimination of subsidies, user-fees for health and education services, increased interest rates, and higher tax rates have a direct impact on the lives of the poor. Free trade advocates continue to claim that trade, not debt relief or increased foreign aid is the key to sustainable growth and poverty reduction in Sub-Saharan Africa. Africa needs access to western markets in order to export its products. Economic growth is largely responsible for poverty alleviation.
This book addresses whether and how multilateral economic regimes can successfully transition from international institutions-cooperation among states-to global governance-cooperation among states and nonstate actors. The unprecedented era of peace and prosperity since World War II has been underpinned by multilateral economic regimes, yet in recent years the rise of nonstate actors has intensified international conflicts regarding fundamental questions of how to govern. This book asks whether and how multilateral regimes will be able to adapt. Based on an analysis of multilateral regimes for trade, investment, and poor-country debt, the author concludes that all multilateral regimes-including those in the security, human rights, and environmental areas-face an increasingly existential challenge of reconciling the diverse 'polity preferences' of an ever-growing constituency of state and nonstate actors. This book's key contribution is a single model of state and nonstate actor preference formation, which offers the reader a new way to understand the dynamics of twenty-first century global governance. States, Nonstate Actors, and Global Governance will be of interest to students and scholars of international relations, economics, international institutions, global governance and international political economy.
Arnone and Presbitero analyze the design and the implementation of the Heavily Indebted Poor Countries (HIPC) Initiative, by pointing out its main drawbacks and suggesting a different approach to debt sustainability and debt relief programs. © Marco Arnone and Andrea F. Presbitero 2010. All rights reserved.
As governments in developing countries (DC) come under increasing pressure to deal with corruption, Information and Communications Technology (ICT) has become an important strategic resource. Although the use of ICT in DCs is not new, its use to deal with corruption is a challenge. This paper reports on an interpretive investigation into understanding the underlying principles common to the successful use of ICT to deal with corruption in DCs. The underlying principles are examined against South Africa " s official ICT agency as a case study. The findings reveal that whilst there are many DC e-government successful efforts to deal with corruption, a most important challenge in DCs is the absence and lack of clarity of government work processes. Key to dealing with corruption is the existence of clear and complete work processes. Although many articles have appeared on the use of ICT to fight corruption, few have extended the discussion to the common underlying principles that lead to the successful e-government systems that deal with corruption. Methods that have the potential to provide governments in developing countries with a strategy, method and techniques for analyzing some of their work processes are required prior to implementing e-government to deal with corruption.
Through a multi-sited and multi-level exploration of the processes around debt relief in Kenya, and of the complex network of actors involved and their interests, the political nature of debt relief is investigated and assessed. An actor-network approach is used to investigate the political processes taking place between civil society and the state, and how global policies have been translated into the local arena and played out in the local politics. This paper will illustrate how both the state and civil society are fragmented arenas of contrasting interests and separation among the two is only analytical while in reality the borders are blurred. This paper argues that debt relief is the result of a complex political process that, once in place, can create new political processes, thus having implications beyond the economic sphere. Debt relief mobilises a high number of actors pursuing different agendas, creating new possibilities and new relationships with a transformative potential that challenges power relations and changes institutions.
A fundamental governance challenge for federal nations is benefiting from decentralization, while addressing potential negative side effects, including vertical and horizontal imbalances. Inefficient migration due to differential net fiscal benefits in subnational units is one potential negative side effect. To avoid this type of migration, federal payments to disadvantaged subnational units, a place-based policy, are often advocated. In this article, we assess federal equalization transfer payments in Canada as an example of such a policy. Equalization is appraised in terms of its marginal influence on interprovincial migration, after accounting for the persistent relative attractiveness (unattractiveness) of provinces as migration destinations/origins. We then compare equalization to an alternative policy that directly subsidizes workers. Compared to a ``people-based'' policy of wage subsidies, our findings suggest that at the margin, these federal transfers have virtually no impact on net migration.
Abstract If there are benefits to international risk sharing, consumption growth variability should decrease following the liberalization of the equity market. In addition, markets with open equity markets should display lower consumption growth variability than closed markets, everything else equal. However, the recent literature on financial liberalization suggests that volatile capital flows lead to increased output and consumption growth variability post liberalization. In this article, we examine the eects of equity market liberalization on GDP and consumption growth variability. Excluding the 1997-2000 years, dominated by the consequences of the South-East Asia crisis, we find an economically and statistically significant decrease in both GDP and consumption growth variability post liberalization. When the 1997-2000 years are taken into account, the negative volatility response of consumption growth is weakened and is no longer significant for a sample of emerging markets, but remains significant for a larger set of countries. These results hold for both total and idiosyncratic consumption growth volatility. JEL Classification: E32, F30, F36, F43, G15, G18, G28 We thank Susan Collins for inspiring this paper. We appreciate the comments of Andrew Frankel. Send correspondence to: Campbell R. Harvey, Fuqua School of Business, Duke University, Durham, NC 27708. Phone: +1 919.660.7768, E-mail: cam.harvey@duke.edu.
This chapter explores whether conditionality arrangements that would make the conferral of debt relief depend on whether the debtor country achieves a certain status with respect to the human rights fulfilment of its population can be justified. It argues that many objections that are typically advanced against conditionality arrangements are unconvincing, and that the possible benefits of human rights conditionality are sufficient to warrant serious intellectual and practical exploration. Sovereign debt raises serious human rights concerns, however, when very high levels of debt significantly limit the ability of countries to manage their affairs effectively. Any human rights conditionality in which creditors, or countries in which creditors are influential, determine whether there has been compliance with these standards and decide whether it is justified to withhold relief, would clearly lend itself to opportunistic misuse. A conditionality arrangement may involve unfair procedures if such authority is improperly allocated.
Do states and decision-makers ever act for moral reasons? And if they do, is it only when it is convenient or relatively costless for them to do so? A number of advocacy movements—on developing country debt relief, climate change, landmines, and other issues—emerged in the 1990s to ask decision-makers to make foreign policy decisions on that basis. The primary advocates were motivated not by their own material interests but broader notions of right and wrong. What contributes to the domestic acceptance of these moral commitments? Why do some advocacy efforts succeed where others fail? Through a case study of the Jubilee 2000 campaign for developing country debt relief, this article offers an account of persuasion based on strategic framing by advocates to get the attention of decision-makers. Such strategic but not narrowly self-interested activity allows weak actors to leverage existing value and/or ideational traditions to build broader political coalitions. This article, through case studies of debt relief in the United States and Japan, also links the emerging literature on strategic framing to the domestic institutional context and the ways veto players or “policy gatekeepers” evaluate trade-offs between costs and values.
The public health and development communities understand clearly the need to integrate anti-poverty efforts with HIV/AIDS programs. This article reports findings about the impact of the Poverty Reduction Strategy Paper (PRSP) process on Malawi's National HIV/AIDS Strategic Framework (NSF). In this article we ask, how does the PRSP process support NSF accountability, participation, access to information, funding, resource planning and allocation, monitoring, and evaluation? In 2007, we developed and conducted a survey of Malawian government ministries, United Nations agencies, members of the Country Coordination Mechanism, the Malawi National AIDS Commission (NAC), and NAC grantees (N = 125, 90% response rate), seeking survey respondents' retrospective perceptions of NSF resource levels, participation, inclusion, and governance before, during, and after Malawi's PRSP process (2000-2004). We also assessed principle health sector and economic indicators and budget allocations for HIV/AIDS. These indicators are part of a new conceptual framework called shared health governance (SHG), which seeks congruence among the values and goals of different groups and actors to reflect a common purpose. Under this framework, global health policy should encompass: (i) consensus among global, national, and sub-national actors on goals and measurable outcomes; (ii) mutual collective accountability; and (iii) enhancement of individual and group health agency. Indicators to assess these elements included: (i) goal alignment; (ii) adequate resource levels; (iii) agreement on key outcomes and indicators for evaluating those outcomes; (iv) meaningful inclusion and participation of groups and institutions; (v) special efforts to ensure participation of vulnerable groups; and (vi) effectiveness and efficiency measures. Results suggest that the PRSP process supported accountability for NSF resources. However, the process may have marginalized key stakeholders, potentially undercutting the implementation of HIV/AIDS Action Plans.
Of the 41 HIPCs, 11 are classified by the IMF and World Bank as conflict-affected. Can debt relief reduce the level of violent conflict in these countries? By providing additional resources to finance broad-based public spending, debt relief could help to redress the grievances that contribute to conflict. It could also reduce the ability of those motivated by greed to recruit followers, since the incomes, and therefore the grievances of followers, will fall if they benefit from broad-based public spending. But four things can go wrong with the use of debt relief in this way. First, the war party may prevail over the peace party in government, especially if the war party profits directly from conflict. Second, the fiscal system may be so institutionally weak that it cannot achieve the promised fiscal transfer even if the peace party prevails. …/…
The donor community provided around $400 billion in debt relief to developing countries between 1989 and 2004. This paper empirically assesses the impact of debt relief on growth and investment by examining two potential mechanisms. The resource mechanism refers to the resources made available from reduced debt service payments whereas the incentive mechanism takes into account the incentive effects of a reduced debt stock. Based on a sample of 61 developing countries between 1989 and 2004, this study shows that debt relief did not affect growth directly or through capital investment.
Whose responsibility is it to assure food security in an age of globalization? Is improved governance at the international level our greatest need, or are governance deficits most severe at the national level? When national governments lag in assuring food security for their own citizens, can outsiders help make up the resulting governance deficit? What role can bilateral donors and international financial institutions, such as the World Bank, play? Is it possible for NGOs to step in to do the job? These and related pressing questions are addressed in this discussion paper by Robert Paarlberg. He argues that the problems of hunger and food insecurity urgently require a national, not global focus. Many national governments in developing countries still do not provide essential public goods, such as civil peace, rule of law, transport infrastructure, clean water, electrical power, and public research to generate new agricultural productivity essential ingredients in the effort to boost incomes. For tackling hunger, the weak performance of nation-states remains most critical—and in most critical need of improvement. According to Paarlberg, the governance challenge as far as food security is concerned is to persuade sovereign governments to provide the necessary public goods that would ensure access to adequate food. This paper was commissioned for IFPRI's 2020 Vision Initiative conference, "Sustainable Food Security for All by 2020," held on September 4–6, 2001, in Bonn, Germany. A summary version was presented at the session on "Whose Responsibility Is It To End Hunger?" The presentation sparked a long overdue discussion on who are the key actors in the effort to eliminate hunger, how their role has changed over time, and what their responsibilities are likely to be in the future. (from Foreward by Per Pinstrup-Andersen Director General, IFPRI)
We examine the effects of both equity market liberalization and capital account openness on real consumption growth variability. We show that financial liberalization is mostly associated with lower consumption growth volatility. Our results are robust, surviving controls for business-cycle effects, economic and financial development, the quality of institutions, and other variables. Countries that have more open capital accounts experience a greater reduction in consumption growth volatility after equity market openings. The results hold for both total and idiosyncratic consumption growth volatility. We also find that financial liberalizations are associated with declines in the ratio of consumption growth volatility to GDP growth volatility, suggesting improved risk sharing. Our results are weaker for liberalizing emerging markets but we never observe a significant increase in real volatility. Moreover, we demonstrate significant differences in the volatility response depending on the size of the banking and government sectors and certain institutional factors.
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