Debt Relief: The Development and Poverty Impact

Abstract

This paper discusses how the poor-country debt crisis arose as a result of low growth, uncoordinated donor-lending and the absence of a market that could mark down the debt's value. It assesses the state of play with the Heavily Indebted Poor Countries (HIPC) Initia-tive and Multilateral Debt Relief Initiative (MDRI). The paper then turns to the development and poverty impact of debt relief, discussing the debt over-hang and fiscal effects as well the role of economics versus politics in determining the amount of debt relief—and some of the dangers and opportunities that lie ahead. The paper concludes by emphasizing the importance of getting poor countries effectively connected to the international capital market where they can share in the growth of global portfolio flows and foreign direct investment. JEL classification: F41, O16, N25.