A BEJM Contributions article.

Abstract

In this paper we discuss fiscal and monetary policy issues facing heavily-indebted poor countries (HIPCs) who receive debt reduction via the enhanced HIPC initiative. This debt relief program is distinguished from previous ones by its conditionality: freed resources must be used for poverty reduction. We argue that (i) this conditionality severely limits the extent to which the initiative provides significant debt relief; (ii) depending on the response of monetary policy to an increase in social spending there could be a short-run increase in inflation in HIPC countries and (iii) the keys to long-run fiscal sustainability in the HIPCs are significant fiscal reforms by their governments, and the effectiveness of their poverty reduction programs in raising growth.

Submitted: June 13, 2003 · Accepted: April 13, 2005 · Published: May 6, 2005

Originally published in Contributions to Macroeconomics.

Recommended Citation

Burnside, Craig and Fanizza, Domenico (2005) "Hiccups for HIPCs? Implications of Debt Relief for Fiscal Sustainability and Monetary Policy," Contributions to Macroeconomics: Vol. 5 : Iss. 1, Article 4.
Available at: http://www.bepress.com/bejm/contributions/vol5/iss1/art4