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Hiccups for HIPCs

Author

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  • Craig Burnside

    (University of Virginia)

  • Domenico Fanizza

    (IMF)

Abstract

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.

Suggested Citation

  • Craig Burnside & Domenico Fanizza, 2003. "Hiccups for HIPCs," Macroeconomics 0305004, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpma:0305004
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    References listed on IDEAS

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    1. Craig Burnside & Martin Eichenbaum & Sergio Rebelo, 2001. "Prospective Deficits and the Asian Currency Crisis," Journal of Political Economy, University of Chicago Press, vol. 109(6), pages 1155-1197, December.
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    Cited by:

    1. Mr. Edward F Buffie & Mr. Christopher S Adam & Ms. Catherine A Pattillo & Mr. Stephen A. O'Connell, 2004. "Exchange Rate Policy and the Management of Official and Private Capital Flows in Africa," IMF Working Papers 2004/216, International Monetary Fund.
    2. Buffie, Edward & Adam, Christopher & O'Connell, Stephen & Pattillo, Catherine, 2008. "Riding the wave: Monetary responses to aid surges in low-income countries," European Economic Review, Elsevier, vol. 52(8), pages 1378-1395, November.
    3. Neumayer, Eric, 2002. "Is Good Governance Rewarded? A Cross-national Analysis of Debt Forgiveness," World Development, Elsevier, vol. 30(6), pages 913-930, June.

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    More about this item

    Keywords

    debt relief; HIPC; lifetime budget constraint; aid;
    All these keywords.

    JEL classification:

    • E - Macroeconomics and Monetary Economics

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