Sustainability and External Debt Reduction in Poor Countries
Catholic University of Piacenza Economics Working Paper No. 27
26 Pages Posted: 11 Jun 2005
Date Written: February 2005
This paper presents a critical approach to the policy debate about external debt sustainability and debt relief in the High Indebted Poor countries (HIPC). The authors look at the different approaches to and models of debt sustainability and claim that a realistic evaluation of this issue requires the use of the fully-fledged government budget constraint, which includes not only the external debt, but also the domestic debt, as well as the balance of payments and the exchange rates. The authors describe the macroeconomic effects of the IMF-World Bank HIPC Initiative, highlighting some of its theoretical limits; the Initiative could not guarantee ex ante external debt sustainability, except by chance. A new operational framework - that takes into account the overall government budget constraint and the feedback of debt relief on economic growth - and a stronger commitment by advanced economies to open up their agricultural markets to support these countries, are required.
Note: Downloadable document is in Italian.
Keywords: External debt, HIPC, debt sustainability, debt reduction, poor countries
JEL Classification: F34, H63, O11, O19
Suggested Citation: Suggested Citation