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Debt Relief

Author

Listed:
  • Arslanalp, Serkan

    (Stanford U)

  • Henry, Peter B.
Abstract
The G-8 Multilateral Debt Relief Initiative (MDRI) is the next step of the Highly Indebted Poor Countries Initiative (HIPC). There are two reasons why the MDRI is unlikely to help poor countries. First, the amount of money at stake is trivial. The roughly $2 billion of annual debt payments to be relieved under MDRI amounts to roughly 0.01 percent of the GDP of the OECD countries--a mere one-seventieth (1/70) of the quantity of official development assistance agreed to by world leaders on at least three separate occasions (1970, 1992, 2002). Second, the existence of debt overhang is a necessary condition for debt relief to generate economic gains. Since the world's poorest countries do not suffer from debt overhang, debt relief is unlikely to stimulate their investment and growth. The principal obstacle to investment and growth in the world's poorest countries is the fundamental inadequacy in these countries of the basic institutions that provide the foundation for profitable economic activity. In light of these facts, the MDRI may amount to a Pyrrhic victory: A symbolic win for advocates of debt relief that clears the conscience of the rich countries but leaves the real problems of the poor countries unaddressed.

Suggested Citation

  • Arslanalp, Serkan & Henry, Peter B., 2006. "Debt Relief," Research Papers 1931, Stanford University, Graduate School of Business.
    • Handle: RePEc:ecl:stabus:1931
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    References listed on IDEAS

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    Cited by:

    1. Knoll, Martin, 2013. "The heavily indebted poor countries and the multilateral debt relief initiative: A test case for the validity of the debt overhang hypothesis," Discussion Papers 2013/11, Free University Berlin, School of Business & Economics.
    2. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2014. "Sovereigns, Upstream Capital Flows, And Global Imbalances," Journal of the European Economic Association, European Economic Association, vol. 12(5), pages 1240-1284, October.
    3. Mark Aguiar & Manuel Amador & Gita Gopinath, 2009. "Investment Cycles and Sovereign Debt Overhang," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(1), pages 1-31.
    4. Guinnane, Timothy W., 2004. "Financial Vergangenheitsbewaltigung: The 1953 London Debt Agreement," Center Discussion Papers 28387, Yale University, Economic Growth Center.
    5. Imbs, Jean & Ranciere, Romain, 2005. "The overhang hangover," Policy Research Working Paper Series 3673, The World Bank.
    6. Serkan Arslanalp & Peter Blair Henry, 2006. "Policy Watch: Debt Relief," Journal of Economic Perspectives, American Economic Association, vol. 20(1), pages 207-220, Winter.
    7. Freytag, Andreas & Pehnelt, Gernot, 2009. "Debt Relief and Governance Quality in Developing Countries," World Development, Elsevier, vol. 37(1), pages 62-80, January.
    8. Xavier Giroud & Holger M. Mueller & Alex Stomper & Arne Westerkamp, 2012. "Snow and Leverage," The Review of Financial Studies, Society for Financial Studies, vol. 25(3), pages 680-710.
    9. Arslanalp, Serkan & Henry, Peter B., 2006. "Debt Relief," Research Papers 1931, Stanford University, Graduate School of Business.
    10. Mark Aguiar & Manuel Amador, 2011. "Growth in the Shadow of Expropriation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(2), pages 651-697.
    11. Claudio Raddatz, 2011. "Multilateral Debt Relief through the Eyes of Financial Markets," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1262-1288, November.
    12. Peter Blair Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Journal of Economic Literature, American Economic Association, vol. 45(4), pages 887-935, December.
    13. Nicolas Depetris Chauvin & Aart Kraay, 2007. "Who Gets Debt Relief?," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 333-342, 04-05.
    14. Peter Henry, 2007. "Capital Account Liberalization: Theory, Evidence, and Speculation," Discussion Papers 07-004, Stanford Institute for Economic Policy Research.
    15. Eric BERR, 2008. "Which development for the 21st century? Reflections on sustainable development\r\n (In French)," Cahiers du GREThA (2007-2019) 2008-04, Groupe de Recherche en Economie Théorique et Appliquée (GREThA).
    16. Serkan Arslanalp & Peter Blair Henry, 2002. "Debt Relief: What Do the Markets Think?," NBER Working Papers 9369, National Bureau of Economic Research, Inc.
    17. Serkan Arslanalp & Peter Blair Henry, 2005. "Is Debt Relief Efficient?," Journal of Finance, American Finance Association, vol. 60(2), pages 1017-1051, April.
    18. Ugo Panizza, 2008. "The External Debt Contentious Six Years after the Monterrey Consensus," G-24 Discussion Papers 51, United Nations Conference on Trade and Development.

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    JEL classification:

    • E - Macroeconomics and Monetary Economics
    • F - International Economics
    • O - Economic Development, Innovation, Technological Change, and Growth

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