Hiccups for HIPCs? Implications of Debt Relief for Fiscal Sustainability and Monetary Policy

Craig Burnside and Fanizza Domenico ()
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Fanizza Domenico: International Monetary Fund

The B.E. Journal of Macroeconomics, 2005, vol. 5, issue 1, 39

Abstract: In this paper we discuss fiscal and monetary 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 severely limits the extent to which the initiative provides significant debt relief; (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.

Keywords: HIPC; debt relief; foreign aid; government budget constraint (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (3)

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DOI: 10.2202/1534-6005.1133

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