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Hiccups for HIPCs?

  • Burnside, Craig
  • Fanizza, Domenico

In this paper we discuss monetary and fiscal 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 limits the extent to which the initiative relaxes the government's lifetime budget constraint; (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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File URL: http://www.wider.unu.edu/sites/default/files/dp2001-99.pdf
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Paper provided by World Institute for Development Economic Research (UNU-WIDER) in its series Working Paper Series with number UNU-WIDER Research Paper DP2001/99.

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Length: 40 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:unu:wpaper:dp2001-99
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  1. Casella, Alessandra & Eichengreen, Barry, 1994. "Can Foreign Aid Accelerate Stabilization?," CEPR Discussion Papers 961, C.E.P.R. Discussion Papers.
  2. Easterly, William & Mauro, Paolo & Schmidt-Hebbel, Klaus, 1992. "Money demand and seignorage - maximizing inflation," Policy Research Working Paper Series 1049, The World Bank.
  3. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  4. Easterly, William, 2002. "How Did Heavily Indebted Poor Countries Become Heavily Indebted? Reviewing Two Decades of Debt Relief," World Development, Elsevier, vol. 30(10), pages 1677-1696, October.
  5. Claessens, Stijn & Diwan, Ishac & Fernandez-Arias, Eduardo, 1992. "Recent experience with commercial bank debt reduction," Policy Research Working Paper Series 995, The World Bank.
  6. Allan Drazen & Elhanan Helpman, 1987. "Stabilization with Exchange Rate Management," The Quarterly Journal of Economics, Oxford University Press, vol. 102(4), pages 835-855.
  7. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  8. Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 1999. "Prospective deficits and the asian currency crisis," Policy Research Working Paper Series 2174, The World Bank.
  9. Daniel Cohen, 2000. "The HIPC Initiative: True and False Promises," OECD Development Centre Working Papers 166, OECD Publishing.
  10. David Dollar & Craig Burnside, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September.
  11. Maurice Obstfeld, 1986. "Speculative Attack and the External Constraint in a Maximizing Model of the Balance of Payments," Canadian Journal of Economics, Canadian Economics Association, vol. 19(1), pages 1-22, February.
  12. 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.
  13. Joshua Greene, 1989. "The External Debt Problem of Sub-Saharan Africa," IMF Staff Papers, Palgrave Macmillan, vol. 36(4), pages 836-874, December.
  14. Boone, Peter, 1996. "Politics and the effectiveness of foreign aid," European Economic Review, Elsevier, vol. 40(2), pages 289-329, February.
  15. Fernandez-Arias, Eduardo, 1993. "Costs and benefits of debt and debt service reduction," Policy Research Working Paper Series 1169, The World Bank.
  16. Tito Cordella & Giovanni Dell'Ariccia, 2003. "Budget Support Versus Project Aid," IMF Working Papers 03/88, International Monetary Fund.
  17. Svensson, Jakob, 1998. "Foreign aid and rent-seeking," Policy Research Working Paper Series 1880, The World Bank.
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