Some Cautious Remarks on Proposed Debt Cancellation

Abstract

Many theoretical and empirical studies are devoted to the causes of underdevelopment and debt faced by the HIPCs. Yet, despite varied answers to these questions, the view that the debt problem is the leading cause of the HIPCs' inability to generate economic growth - either through placing a ceiling on governments' ability to invest in infrastructure, education and health services, or through reducing economies' capacity to invest export revenue within the exporting country, or both - motivates political leaders, academics and NGOs in their desire to resolve the problem of debt overhang in the HIPCs. In this light, it is important to consider the evidence on whether or not debt relief can be seen as a sufficient and necessary condition for fostering economic development, growth and more equitable distribution of wealth in the HIPCs. The present chapter is not designed to provide a direct analysis of the debt-development links. Instead, it looks into the past history of debt relief in order to identify the successful application of such relief in achieving the broader objective of restarting economic development. It argues that, historically, such a case of effective debt relief was provided by the Brady Plan. It asks the question whether today's HIPCs are poised to gain significantly in growth if Brady-type debt relief is introduced. To do so it considers the experiences of the Brady Plan countries and today's HIPCs.

Keywords: International debt, Development, HIPC, Brady Plan

JEL Classification: E22, E62, F34, F35, F43, H11