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Hiccups for HIPCs?

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  • Craig Burnside
  • Domenico Fanizza

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

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10903.

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Date of creation: Nov 2004
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Publication status: published as Burnside, Craig and Domenico Fanizza. "Hiccups For HIPCs? Implications Of Debt Relief For Fiscal Sustainability And Monetary Policy," Contributions to Macroeconomics, 2005, v5(1), Article 4.
Handle: RePEc:nbr:nberwo:10903

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  1. Maurice Obstfeld, 1986. "Speculative Attack and the External Constraint in a Maximizing Model of the Balance of Payments," NBER Working Papers 1437, National Bureau of Economic Research, Inc.
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  7. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
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  10. Claessens, Stijn & Diwan, Ishac & Fernandez-Arias, Eduardo, 1992. "Recent experience with commercial bank debt reduction," Policy Research Working Paper Series 995, The World Bank.
  11. Drazen, Allan & Helpman, Elhanan, 1987. "Stabilization with Exchange Rate Management," The Quarterly Journal of Economics, MIT Press, vol. 102(4), pages 835-55, November.
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Cited by:
  1. Christopher Adam, 2006. "Riding the Wave: Monetary Responses to Aid Surges in Low-Income Countries," Economics Series Working Papers WPS/2006-04, University of Oxford, Department of Economics.
  2. Edward Buffie & Christopher Adam & Stephen O'Connell & Catherine Pattillo, 2004. "Exchange Rate Policy and the Management of Official and Private Capital Flows in Africa," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 126-160, June.
  3. Neumayer, Eric, 2002. "Is Good Governance Rewarded? A Cross-national Analysis of Debt Forgiveness," World Development, Elsevier, vol. 30(6), pages 913-930, June.

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