External Debt and Growth: Implications for HIPCs

Abstract

Excessive external indebtedness has plagued numerous developing countries since the 1980s. In the 1980s, a number of middle-income countries — especially in Latin America — experienced high indebtedness, and most of them have since managed to reduce it, partly through international efforts such as the Brady plan. However, in the second half of the 1990s, policy-makers around the world began to recognize that very high large debt levels were a contributing factor to the extreme poverty of many low-income countries, despite the fact that a sizeable share of the lending to these countries had occurred at concessional rates.

The authors would like to thank Bill Easterly for sharing his data set on NPV of external debt; Eduardo Borensztein, Peter Clark, Daniel Cohen, Kenneth Kletzer, Paul Masson, Ashoka Mody, Sam Ouliaris, Eswar Prasad, Robert Powell and Xavier Sala-i-Martin for useful discussions; participants in the WIDER Debt Relief Conference (Helsinki, 2001); and Grace Juhn for excellent and invaluable research assistance.