Hiccups for HIPCs?
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.
|Date of creation:||Nov 2004|
|Date of revision:|
|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.|
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