Debt Distress in the New International Financial Architecture: Lessons from the HIPC-MDR Initiatives
(Johns Hopkins SAIS)
with Simon Lepot, Thomas Sampson and Julian Schärer
Developing countries’ indebtedness increased significantly in the last decade. This is why the HIPC MDR initiative, which forgave most of the poorest countries’ debt stock at the turn of the new millennium, is gaining renewed attention. The developmental community asks whether the current debt crisis, partly due to the emergence of non-traditional lenders, may be the consequence of HIPC/MDRI’s write-offs. Questions also arise about the effectiveness of debt relief in increasing total resources available to developing countries and fostering social spending and growth. To answer these questions, we take a novel approach (in the HIPC literature) based on Synthetic Control Methods, and we look at the behavior of HIPCs’ net inflows, growth, and investment patterns before and after debt relief and compare them with non-HIPC DSSI countries. Our analysis suggests that total net flows showed a moderate pickup after debt relief. However, the main driver is multilateral lending, which increased substantially after HIPC. Contrary to familiar rhetoric, new flows by China and other non-PC creditors to HIPCs have declined compared to flows from similar countries. Looking at growth and investment patterns, our preliminary results suggest that the effects of the HIPC’s initiative seem to be underwhelming, and clear patterns are challenging to establish.
The seminar will be in presence, DEMS Seminar Room 2104, Building U7-2nd floor