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Debt Relief, Additionality, and Aid Allocation in Low Income Countries

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  • Robert Powell
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    Abstract

    This paper models the resource implications of debt relief provided to low-income countries (LICs). Obtaining debt relief does not necessarily lead to individual aid-dependent countries receiving more overall resources from the donor community. Preliminary cross-section estimates suggest that debt relief provided to low-income countries in the period 1996 2000 neither crowded out other non-debt relief-related aid flows to the debtors concerned nor created significant extra net resources for those countries. While it is too early to fully assess the resource implications of the enhanced HIPC Initiative, this paper provides a possible approach to such an evaluation.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/175.

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    Length: 22
    Date of creation: 01 Sep 2003
    Date of revision:
    Handle: RePEc:imf:imfwpa:03/175

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    Keywords: Debt relief; debt; debt reduction; creditors; debt service payments; debt service; debt-relief; debt sustainability; creditor; payments; debts; foreign aid; loans; interest; debtors; external debt; debt stock; debtor reporting; debt problems; debt burden; indebted countries; debt forgiveness; international debt; debt management; official creditors; highly indebted countries; bilateral debt; national debt; debtor countries; repayment; actual debt; debt crisis; debt ratios; stock of debt; commercial creditors; debtor reporting system; relief mechanisms; amount of debt; debt stocks; donor governments; debtor country; debt stock variable; traditional external borrowing; official creditor; debt sustainability analysis; heavily indebted countries; taxpayers; debt relief initiatives; creditor countries; traditional debt-relief mechanisms; budgetary resources; debt relief mechanisms; restructuring; debt relief initiative; concessional debt; international lending; traditional debt relief mechanisms; allocation criteria; low debt; external finance; debt overhangs; commercial loans;

    References

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    1. Gounder, Rukmani, 1994. "Empirical results of aid motivations: Australia's bilateral aid program," World Development, Elsevier, Elsevier, vol. 22(1), pages 99-113, January.
    2. Kevin Ross & R. Brooks & Robert Powell & Ydahlia A. Metzgen Quemarez & Doris C. Ross & Mariano Cortes & Saqib Rizavi & Benoit Ketchekmen & Francesca Fornasari, 1998. "External Debt Histories of Ten Low-Income Developing Countries," IMF Working Papers 98/72, International Monetary Fund.
    3. Jeffrey D. Sachs, 2002. "Resolving the Debt Crisis of Low-Income Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(1), pages 257-286.
    4. Enzo Grilli & Markus Riess, 1992. "EC aid to associated countries: distribution and determinants," Review of World Economics (Weltwirtschaftliches Archiv), Springer, Springer, vol. 128(2), pages 202-220, June.
    5. Hjertholm, Peter, 2001. "Debt Relief and the Rule of Thumb: Analytical History of HIPC Debt Sustainability Targets," Working Paper Series, World Institute for Development Economic Research (UNU-WIDER) UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
    6. Claessens, Stijn & Detragiache, Enrica & Kanbur, Ravi & Wickham, Peter, 1996. "Analytical aspects of the debt problems of heavily indebted poor countries," Policy Research Working Paper Series 1618, The World Bank.
    7. Wall, Howard J., 1995. "The allocation of official development assistance," Journal of Policy Modeling, Elsevier, Elsevier, vol. 17(3), pages 307-314, June.
    8. Nancy Birdsall & John Williamson, 2002. "Delivering on Debt Relief: From IMF Gold to a New Aid Architecture," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 337, July.
    9. Mosley, Paul, 1985. "The Political Economy of Foreign Aid: A Model of the Market for a Public Good," Economic Development and Cultural Change, University of Chicago Press, University of Chicago Press, vol. 33(2), pages 373-93, January.
    10. repec:imf:imfpdp:9801 is not listed on IDEAS
    11. Cohen, Daniel, 1990. "Debt Relief: Implications of Secondary Market Discounts and Debt Overhangs," World Bank Economic Review, World Bank Group, World Bank Group, vol. 4(1), pages 43-53, January.
    12. Dudley, Leonard & Montmarquette, Claude, 1976. "A Model of the Supply of Bilateral Foreign Aid," American Economic Review, American Economic Association, American Economic Association, vol. 66(1), pages 132-42, March.
    13. Dowling, J. M. & Hiemenz, Ulrich, 1985. "Biases in the allocation of foreign aid: Some new evidence," World Development, Elsevier, Elsevier, vol. 13(4), pages 535-541, April.
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    Cited by:
    1. Daniel Cohen & Pierre Jacquet & Helmut Reisen, 2010. "Loans or Grants?," Working Papers id:3218, eSocialSciences.
    2. Graham Bird & Dane Rowlands, 2005. "The IMF and the Mobilization of Foreign Aid," School of Economics Discussion Papers, School of Economics, University of Surrey 1105, School of Economics, University of Surrey.
    3. Johansson, Pernilla, 2008. "Debt Relief, Investment and Growth," Working Papers, Lund University, Department of Economics 2008:11, Lund University, Department of Economics.
    4. Jie Yang & Dan Nyberg, 2009. "External Debt Sustainability in HIPC Completion Point Countries: An Update," IMF Working Papers 09/128, International Monetary Fund.

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