Loans or Grants
We argue in this paper that cancelling the debt of the poorest countries was a good thing, but that it should not imply that the debt instrument should be foregone. We claim that debt and debt cancellations are indeed two complementary instruments which, if properly managed, perform better than either loans or grants taken in isolation. The core of the intuition, which we develop in a simple two-period model, relates to the fact that the poorest countries are also the most volatile, so that contingent facilities, explicitly incorporating debt cancellation mechanisms, are a valuable instrument. Based on this idea, we present one of the lending scheme that could be applied to the poorest countries and calibrate the cost that would have to be borne by the creditors, were they to incorporate contingencies clause in their lending strategy.
|Date of creation:||Jan 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
- Michael Clemens & Steven Radelet & Rikhil Bhavnani, 2004.
"Counting Chickens When They Hatch: The Short-term Effect of Aid on Growth,"
44, Center for Global Development.
- Michael A. Clemens & Steven Radelet & Rikhil Bhavnani, 2004. "Counting chickens when they hatch: The short-term effect of aid on growth," International Finance 0407010, EconWPA.
- Dani Rodrik, 1995.
"Why is there Multilateral Lending?,"
NBER Working Papers
5160, National Bureau of Economic Research, Inc.
- Reisen, Helmut & von Maltzan, Julia, 1999.
"Boom and Bust and Sovereign Ratings,"
Wiley Blackwell, vol. 2(2), pages 273-93, July.
- Patrick GUILLAUMONT & Sylviane GUILLAUMONT JEANNENEY & Lisa CHAUVET & Pierre JACQUET & Bertrand SAVOYE, 2003.
"Attenuating through Aid the Vulnerability to Price Shocks,"
- Patrick Guillaumont & Sylviane Guillaumont Jeanneney & Pierre Jacquet & Lisa Chauvet & Bertrand Savoye, 2007. "Attenuating through Aid the Vulnerability to Price Shocks," Post-Print hal-00293071, HAL.
- Iman Sugema & Anis Chowdhury, 2005. "Aid and Fiscal Behaviour in Indonesia: The case of a lazy government," Centre for International Economic Studies Working Papers 2005-06, University of Adelaide, Centre for International Economic Studies.
- Matthew Odedokun, 2004. "Multilateral and Bilateral Loans versus Grants: Issues and Evidence," The World Economy, Wiley Blackwell, vol. 27(2), pages 239-263, 02.
- Silvia Marchesi & Alessandro Missale, 2004.
"What does motivate lending and aid to the HIPCs?,"
Development Working Papers
189, Centro Studi Luca d\'Agliano, University of Milano.
- Nunnenkamp, Peter & Thiele, Rainer & Wilfer, Tom, 2005. "Grants versus loans: Much ado about (almost) nothing," Kiel Economic Policy Papers 4, Kiel Institute for the World Economy (IfW).
- Sanjeev Gupta & Benedict Clements & Emanuele Baldacci & Carlos Mulas-Granados, 2004. "The persistence of fiscal adjustments in developing countries," Applied Economics Letters, Taylor & Francis Journals, vol. 11(4), pages 209-212.
- Bulow, Jeremy & Rogoff, Kenneth S., 2005.
"Grants versus Loans for Development Banks,"
11129181, Harvard University Department of Economics.
- Robert Powell, 2003. "Debt Relief, Additionality, and Aid Allocation in Low Income Countries," IMF Working Papers 03/175, International Monetary Fund.
- Odedokun, Matthew, 2003. "Economics and Politics of Official Loans versus Grants Panoramic Issues and Empirical Evidence," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
- Reisen, Helmut & Soto, Marcelo, 2001. "Which Types of Capital Inflows Foster Developing-Country Growth?," International Finance, Wiley Blackwell, vol. 4(1), pages 1-14, Spring.
- Daniel Cohen, 2000.
"The HIPC Initiative: True and False Promises,"
OECD Development Centre Working Papers
166, OECD Publishing.
- Louise Young, 2002. "Determining the Discount Rate for Government Projects," Treasury Working Paper Series 02/21, New Zealand Treasury.
- Ratha, Dilip, 2001. "Complementarity between multilateral lending and private flows to developing countries : some empirical results," Policy Research Working Paper Series 2746, The World Bank.
- Hulya Ulku & Tito Cordella, 2004. "Grants Versus Loans," IMF Working Papers 04/161, International Monetary Fund.
- Bulow, Jeremy & Rogoff, Kenneth, 1990. "Cleaning Up Third World Debt without Getting Taken to the Cleaners," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 31-42, Winter.
- Garey Ramey & Valerie A. Ramey, 1994.
"Cross-Country Evidence on the Link Between Volatility and Growth,"
NBER Working Papers
4959, National Bureau of Economic Research, Inc.
- Ramey, Garey & Ramey, Valerie A, 1995. "Cross-Country Evidence on the Link between Volatility and Growth," American Economic Review, American Economic Association, vol. 85(5), pages 1138-51, December.
- Devesh Kapur, 2002. "Do as I Say Not as I Do: A Critique of G-7 Proposals on Reforming the MDBs," Working Papers 16, Center for Global Development.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:6024. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.