Do Highly Indebted Poor Countries (HIPCs) suffer from a debt overhang? Is debt relief going to improve their growth rates? To answer these important questions, we look at how the debt-growth relationship varies with indebtedness levels and other country characteristics in a panel of developing...

This note examines the efficiency gains that might result from market-based debt reduction and alternative uses of resources. It is argued that when a country’s expected output falls short of contractual claims on that output, private investment is drawn to activities that protect the...

This paper discusses the Heavily Indebted Poor Countries (HIPC) Initiative in the perspective of sizable historical debt relief and large positive net resource flows to HIPCs. It argues that, by substantially reducing HIPCs’ debt stocks and debt service payments, the Initiative provides a...

The low-income country debt crisis had its origins in weak macroeconomic policies, and official creditors’ willingness to take risks unacceptable to private lenders. Payments problems were initially addressed through nonconcessional reschedulings and new lending that maximized financing while...

This paper models the resource implications of debt relief provided to low-income countries (LICs). Obtaining debt relief does not necessarily lead to individual aid-dependent countries receiving more overall resources from the donor community. Preliminary cross-section estimates suggest that...

The purpose of this paper is to analyze the argument that debt relief would increase the incentive of a debtor country to make an adjustment effort (to invest) and that for this reason creditors may benefit by granting relief. It is shown that there are actually opposing incentive effects of...

This paper looks at the link between fiscal policy and debt sustainability in a number of African countries participating in the Heavily Indebted Poor Countries (HIPC) Initiative. The paper finds that, on the basis of current fiscal policies, debt levels will remain unsustainable even after...

The paper presents a theoretical model to explain how debt overhang is generated in low-income countries and discusses its implications for debt relief. The paper indicates that the extent of debt overhang, and the effectiveness of debt relief, would depend on a recipient country''s initial...

International debt contracts can incorporate—at least implicitly—contingencies governing debt reduction. This paper examines a series of debt contracts that allow for the possibility of rescheduling, forgiveness, and rescheduling with forgiveness. The contract with both rescheduling and...

We study how 22 donors allocate their bilateral aid among 147 recipient countries over the 1970- 2004 period to investigate whether changes in the international aid architecture?at the international and country level?have led to changes in behavior. We find that after the fall of the Berlin...