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Low Income Countries and External Public Financing : Does Debt Relief Change Anything?

Listed author(s):
  • Marin Ferry


    (LEDa, UMR DIAL, université Paris-Dauphine)

  • Marc Raffinot


    (LEDa, UMR DIAL, université Paris-Dauphine)

  • Baptiste Venet


    (LEDa, UMR DIAL, université Paris-Dauphine)

(english) Low income countries (LICs) generally have very little access to the international financial markets. In the 1990s, bilateral creditors and international financial institutions started granting LICs debt relief under the Heavily Indebted Poor Countries (HIPCs) initiatives and continued with the more recent Multilateral Debt Relief Initiative (MDRI). Have these debt relief initiatives led official and private creditors to change their lending policy with respect to beneficiary countries? This paper addresses this question using difference-in-differences methodology. Our findings tend to show that official lenders tighten their HIPC financing policy, shortening grace and maturity periods, and reducing the grant element on new loans once debt relief has been provided. We also find that beneficiary governments manage to diversify their financing sources by borrowing more from private creditors once they have completed the HIPC process and have received additional debt cancellations under the MDRI. _________________________________ (français) Cet article évalue l'impact des initiatives d'allègement de dette multilatérale sur les conditions de réendettement extérieur des gouvernements bénéficiaires auprès de créanciers officiels et privés. Les résultats de cette étude indiquent qu'avoir bénéficié des initiatives PPTE (Pays Pauvres Très Endettés) et IADM (Initiative d’Annulation de Dette Multilatérale) conduit les gouvernements concernés à contracter des emprunts officiels comprenant des périodes de grâce et de maturité plus courtes (et donc un « élément-don » plus faible) que s'ils n'avaient obtenu ces annulations de dette. Nos résultats montrent également que les gouvernements bénéficiaires parviennent à emprunter davantage auprès de créanciers privés une fois leur dette annulée. Cependant, des tests additionnels révèlent que cet accès à de nouveaux marchés financiers ne s’effectue qu’après l’octroi des annulations de dette sous l’IADM et que les investisseurs internationaux privés ne s’autorisent donc à prêter aux PPTE qu’une fois la quasi-totalité de leur dette extérieure annulée.

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Paper provided by DIAL (Développement, Institutions et Mondialisation) in its series Working Papers with number DT/2016/16.

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Length: 34 pages
Date of creation: Nov 2016
Handle: RePEc:dia:wpaper:dt201616
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  1. Elias Papaioannou & Gregorios Siourounis, 2008. "Democratisation and Growth," Economic Journal, Royal Economic Society, vol. 118(532), pages 1520-1551, October.
  2. Aguiar, Mark & Gopinath, Gita, 2006. "Defaultable debt, interest rates and the current account," Journal of International Economics, Elsevier, vol. 69(1), pages 64-83, June.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters,in: This Time Is Different: Eight Centuries of Financial Folly Princeton University Press.
  4. Alesina, Alberto & Dollar, David, 2000. "Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March.
  5. Cuadra, Gabriel & Sapriza, Horacio, 2008. "Sovereign default, interest rates and political uncertainty in emerging markets," Journal of International Economics, Elsevier, vol. 76(1), pages 78-88, September.
  6. Gelos, R. Gaston & Sahay, Ratna & Sandleris, Guido, 2011. "Sovereign borrowing by developing countries: What determines market access?," Journal of International Economics, Elsevier, vol. 83(2), pages 243-254, March.
  7. Harrigan, Jane & Wang, Chengang & El-Said, Hamed, 2006. "The economic and political determinants of IMF and world bank lending in the Middle East and North Africa," World Development, Elsevier, vol. 34(2), pages 247-270, February.
  8. Marin Ferry, 2015. "The Carrot and Stick Approach to Debt Relief : Overcoming Moral Hazard," Working Papers DT/2015/14, DIAL (Développement, Institutions et Mondialisation).
  9. Paul Clist & Oliver Morrissey, 2011. "Aid and tax revenue: Signs of a positive effect since the 1980s," Journal of International Development, John Wiley & Sons, Ltd., vol. 23(2), pages 165-180, March.
  10. Sanjeev Gupta & Amine Mati & Emanuele Baldacci, 2008. "Is it (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets," IMF Working Papers 08/259, International Monetary Fund.
  11. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, January.
  12. repec:dau:papers:123456789/4089 is not listed on IDEAS
  13. Graham Bird & Dane Rowlands, 2001. "IMF lending: how is it affected by economic, political and institutional factors?," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 4(3), pages 243-270.
  14. Knight, Malcolm & Santaella, Julio A., 1997. "Economic determinants of IMF financial arrangements," Journal of Development Economics, Elsevier, vol. 54(2), pages 405-436, December.
  15. Danny Cassimon & Bjorn Van campenhout, 2008. "Comparative Fiscal Response Effects Of Debt Relief: An Application To African Hipcs," South African Journal of Economics, Economic Society of South Africa, vol. 76(3), pages 427-442, September.
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