Conditionality and debt relief

Stijn Claessens () and Ishac Diwan ()

No 213, Policy Research Working Paper Series from The World Bank

Abstract: Six years into the debt crisis, questions about the relevance of policy measures to alleviate the crisis still abound. Conditionality by international financial institutions and rescheduling by commercial creditors have been dismissed in favor of debt reduction as strategies for restoring the creditworthiness of heavily indebted countries. This paper argues that the combination of conditionality and new private money - if properly interpreted and correctly implemented - should not be dismissed too lightly. The paper contends that liquidity (the availability of current resources) in the debtor country is probably as important an incentive for a country to invest and adjust as having a small enough debt stock outstanding. Debt reduction alone, is not as efficient as simultaneously providing liquidity and debt reduction if liquidity were available. The combination of new money and conditionality will work if the debt stock is small enough and enough new money is available.

Keywords: Environmental Economics&Policies; Economic Theory&Research; Strategic Debt Management; Financial Intermediation; Housing Finance (search for similar items in EconPapers)
Date: 1989-06-30
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Citations: View citations in EconPapers (6)

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