Conditionality, Debt Relief, and the Developing Country Debt Crisis
This paper raises several cautionary notes regarding high-conditionality lending by the International Monetary Fund and the World Bank in the context of international debt crisis. It is argued that the role for high-conditionality lending is more restricted than generally believed, because enforcement of conditionality is rather weak. Moreover, the incentives for a country to abide by conditionality terms are also likely to be reduced by a large overhang of external indebtedness. Given the limited ability to enforce conditionality agreements, modesty and realism should be a cornerstone of each program. The experience with conditionality suggests two major lessons for the design of high-conditionality lending. First, debt forgiveness rather than mere debt rescheduling may increase a debtor country's compliance with conditionality, and thereby increase the actual stream of repayments by the indebted countries. Second, given the complexity of the needed adjustments, and the difficulty of enforcing conditionality agreements, programs are most likely to be successful when macroeconomic stabilization is given priority over large-scale liberalization.
|Date of creation:||Jul 1988|
|Publication status:||published as With Harry Huizinga, published as "U.S. Commercial Banks and the Developing-Country Debt Crisis", BP, Vol. 18, no. 2 (1987): 555-601.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
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.:
- Jeffrey Sachs & Daniel Cohen, 1982. "LDC Borrowing with Default Risk," NBER Working Papers 0925, National Bureau of Economic Research, Inc.
- Balassa, Bela, 1984. "Adjustment policies in developing countries: A reassessment," World Development, Elsevier, vol. 12(9), pages 955-972, September.
- Obstfeld, Maurice, 1986.
"Rational and Self-fulfilling Balance-of-Payments Crises,"
American Economic Review,
American Economic Association, vol. 76(1), pages 72-81, March.
- Maurice Obstfeld, 1984. "Rational and Self-Fulfilling Balance-of-Payments Crises," NBER Working Papers 1486, National Bureau of Economic Research, Inc.
- Jeffrey D. Sachs, 1985. "External Debt and Macroeconomic Performance in Latin America and East Asia," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 16(2), pages 523-573.
- Corbo, Vittorio & De Melo, Jaime, 1985. "Overview and summary," World Development, Elsevier, vol. 13(8), pages 863-866, August.
- Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
- Paul R. Krugman, 1988. "Financing vs. Forgiving a Debt Overhang," NBER Working Papers 2486, National Bureau of Economic Research, Inc.
- Jeffrey D. Sachs, 1987. "Trade and Exchange Rate Policies in Growth-Oriented Adjustment Programs," NBER Working Papers 2226, National Bureau of Economic Research, Inc.
- von Furstenberg, George M., 1985. "Adjustment with IMF lending," Journal of International Money and Finance, Elsevier, vol. 4(2), pages 209-222, June. Full references (including those not matched with items on IDEAS)