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Hiccups for HIPCs? Implications of Debt Relief for Fiscal Sustainability and Monetary Policy

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  • Burnside Craig

    ()
    (Duke University)

  • Fanizza Domenico

    ()
    (International Monetary Fund)

Abstract

In this paper we discuss fiscal and monetary policy issues facing heavily-indebted poor countries (HIPCs) who receive debt reduction via the enhanced HIPC initiative. This debt relief program is distinguished from previous ones by its conditionality: freed resources must be used for poverty reduction. We argue that (i) this conditionality severely limits the extent to which the initiative provides significant debt relief; (ii) depending on the response of monetary policy to an increase in social spending there could be a short-run increase in inflation in HIPC countries and (iii) the keys to long-run fiscal sustainability in the HIPCs are significant fiscal reforms by their governments, and the effectiveness of their poverty reduction programs in raising growth.

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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Macroeconomics.

Volume (Year): 5 (2005)
Issue (Month): 1 (May)
Pages: 1-39

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Handle: RePEc:bpj:bejmac:v:contributions.5:y:2005:i:1:n:4

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Web page: http://www.degruyter.com

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Cited by:
  1. Nicolas Depetris Chauvin & Aart Kraay, 2005. "What Has 100 Billion Dollars Worth of Debt Relief Done for Low- Income Countries?," International Finance 0510001, EconWPA.

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