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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Length: Date of creation: Nov 2004 Date of revision: Handle: RePEc:nbr:nberwo:10903
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Burnside, Craig & Fanizza, Domenico, 2001.
"Hiccups for HIPCs?,"
Working Papers
UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
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Find related papers by JEL classification: E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
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Eaton, Jonathan & Fernandez, Raquel, 1995.
"Sovereign debt,"
Handbook of International Economics,
in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077
Elsevier.
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Eaton, J. & Fernandez, R., 1995.
"Sovereign Debt,"
Papers
37, Boston University - Department of Economics.
Jonathan Eaton & Raquel Fernandez, 1995.
"Sovereign Debt,"
NBER Working Papers
5131, National Bureau of Economic Research, Inc.
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Craig Burnside & David Dollar, 2000.
"Aid, Policies, and Growth,"
American Economic Review,
American Economic Association, vol. 90(4), pages 847-868, September.
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