Debt Relief and Beyond: Lessons Learned and Challenges Ahead

The history of debt relief goes back several decades. It reveals that a country’s accumulation of unsustainable debt stems from such factors as deficiencies in macroeconomic management, adverse terms-of-trade shocks, and poor governance. Debt-relief initiatives have provided debt-burdened countries with the opportunity for a fresh start, but whether the benefits of debt relief can be preserved depends on transformations in a country’s policies and institutions. In 1996, the Heavily Indebted Poor Countries (HIPC) Initiative was launched as the first comprehensive, multilateral, debt-relief framework for low-income countries. In 2005, the Multilateral Debt Relief Initiative was established, which increased the level of debt relief provided to HIPCs. As of early 2009, assistance through these two initiatives had been committed to 35 countries and amounted to US$117 billion in nominal terms, or half of the 2007 GDP of these countries. 'Debt Relief and Beyond' assesses the implications of debt relief for low-income countries and how its benefits can be preserved and used to fight poverty. The chapter authors bring unique operational experience to their examination of debt relief, debt sustainability, and debt management. Several key questions are addressed, including, what consequences does debt relief have for poverty-reducing expenditures, growth, and access to finance? Can debt relief guarantee debt sustainability? How can debt management at all levels of government be improved? What lessons can be learned from countries that have experienced debt restructuring? Finally, this book provides sound empirical evidence using current econometric techniques.

"For years, debt relief has been extended to poor countries in the belief that they would then be enabled to grow more rapidly and use the resources thus freed for the poor. In this important volume, the contributors undertake systematic analyses of the effects of debt relief. The book is a major contribution to our understanding of how effective debt relief is as a means of combating poverty, and should be required reading for all those in the development community." --Anne O. Krueger, Professor of International Economics, Paul Nitze School of Advanced International Studies, Johns Hopkins University, Herald L. and Caroline L. Ritch Professor Emeritus, Economics Department, Stanford University

"It is hard to find issues of similar worldwide importance to those discussed in this book. Debt Relief and Beyond addresses questions that are key to the pursuit of global peace and justice in a globalized world. The tools described will undergo a harsh test of their practicability due to the global financial crisis. Accordingly, this book is an important, but certainly not the ultimate, step in the evolving debate about debt and development." --Christoph G. Paulus, Dean of the Law School and Professor of Law, Humboldt University at Berlin

"This book takes up many of the critical issues concerning future policies in the HIPC countries. At their heart is the concern, how can low-income countries avoid repeating the cycle of borrowing themselves into unsustainability? Countries that can see light at the end of the tunnel (and who would have thought three decades ago that the likes of Bangladesh and India would now be emerging?) will find much good advice here. Our worries need to focus on the countries that are not yet in this position and for which additional grant aid is the only option." --John Williamson, Senior Fellow, Peterson Institute for International Economics