Does debt relief “irresistibly attract banks as honey attracts bees”? Evidence from low-income countries’ debt relief programs

Marin Ferry, Marc Raffinot and Baptiste Venet
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Baptiste Venet: LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique, LEDA-DIAL - Développement, Institutions et Modialisation - LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: The Covid-19 crisis has recently rekindled discussions about debt relief, leading official lenders to grant a moratorium on low-income countries' external public debt service. Private creditors, which had massively invested in LICs (especially in Africa), have been so far relatively spared. But would they keep lending to these countries if a new wave of debt write-offs were to occur? Building on the two largest debt relief programs for LICs, namely the Heavily Indebted Poor Countries Initiative (HIPC) and the Multilateral Debt Relief Initiative (MDRI), we investigate whether debt relief leads international private creditors to withdraw or to resume lending to beneficiary governments. Using a difference-in-differences approach, our results suggest that debt relief has fostered borrowing from private creditors, and identify the absence of reputational effects and the short-term horizon of private creditors as the key drivers that made renewed access to the credit market possible.

Keywords: Debt relief; International credit markets; Sovereign debt; Low-income countries (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

Published in International Review of Law and Economics, 2021, 66 (June 2021), pp.105978. ⟨10.1016/j.irle.2021.105978⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03148522

DOI: 10.1016/j.irle.2021.105978

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