SINCE the financial crisis all manner of sovereign debtors have sought relief. Ukraine wants concessions from bondholders; Greece, which has already obtained that, wants forgiveness from other governments too. They are appealing not just to creditors’ compassion, but to economic efficiency: diminishing their burden will be for the greater good, they suggest, in that it will provide a boost to growth. That was also one of the arguments made by advocates for the world’s 39 “heavily indebted poor countries” (HIPCs), which secured a promise of substantial debt relief a decade ago, at a summit of rich countries in Gleneagles, a Scottish resort. HIPCs’ external public debt duly fell from about 100% of GDP in 2005 to 40% by 2012, thanks to big write-offs. But new research suggests the relationship between debt relief and economic growth is not as straightforward as campaigners claimed.
Egged on by a coterie of pop stars, multilateral bodies like the International Monetary Fund and the World Bank agreed at Gleneagles to the multilateral-debt-relief initiative (MDRI). It built on a prior round of debt relief agreed upon in 1996, the HIPC initiative, which...
from The Economist: Finance and economics http://ift.tt/1GSkIbt
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