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Conditionality and debt relief

Author

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  • Claessens, Stijn
  • Diwan, Ishac

Abstract

Six years into the debt crisis, questions about the relevance of policy measures to alleviate the crisis still abound. Conditionality by international financial institutions and rescheduling by commercial creditors have been dismissed in favor of debt reduction as strategies for restoring the creditworthiness of heavily indebted countries. This paper argues that the combination of conditionality and new private money - if properly interpreted and correctly implemented - should not be dismissed too lightly. The paper contends that liquidity (the availability of current resources) in the debtor country is probably as important an incentive for a country to invest and adjust as having a small enough debt stock outstanding. Debt reduction alone, is not as efficient as simultaneously providing liquidity and debt reduction if liquidity were available. The combination of new money and conditionality will work if the debt stock is small enough and enough new money is available.

Suggested Citation

  • Claessens, Stijn & Diwan, Ishac, 1989. "Conditionality and debt relief," Policy Research Working Paper Series 213, The World Bank.
    • Handle: RePEc:wbk:wbrwps:213
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    Citations

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    Cited by:

    1. Maier, Rolf, 2005. "External Debt and Pro-Poor Growth," Proceedings of the German Development Economics Conference, Kiel 2005 23, Verein für Socialpolitik, Research Committee Development Economics.
    2. Nunnenkamp, Peter, 1989. "Capital drain, debt relief, and creditworthiness of developing countries," Kiel Working Papers 379, Kiel Institute for the World Economy (IfW Kiel).
    3. Bert Hofman & Helmut Reisen, 1990. "Debt Overhang, Liquidity Constraints and Adjustment Incentives," OECD Development Centre Working Papers 32, OECD Publishing.
    4. Claessens, Stijn & Diwan, Ishac, 1990. "Methodological issues in evaluating debt - reducing deals," Policy Research Working Paper Series 408, The World Bank.
    5. Bandopadhyaya, Arindam, 1995. "A reexamination of the efficiency of price and output indexed sovereign debt contracts," Journal of Economics and Business, Elsevier, vol. 47(1), pages 57-64, February.
    6. Cassimon, D & Renard, Robrecht, 2003. "Fiscal ownership and the role of donors: will HIPC matter?," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34940, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).

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