Embed Size (px)
Citation preview
Results of International Debt Relief
Geske DijkstraErasmus University Rotterdam
Evaluation of Dutch debt relief for IOB
(Policy & Operations Evaluation Department)
Ministry of Foreign Affairs, Netherlands
Full report: www.euforic.org/iob
Presentation overview
Design of the evaluation Results: stock, flow and conditionality
effects of debt relief Some remarks on HIPC
The Evaluation
8 country studies, out of which 3 field studies Nicaragua, Bolivia, Jamaica, Peru Mozambique, Tanzania, Uganda, Zambia
Literature survey on debt problem and creditor responses Econometric study Study of Dutch policies
Period: 1990s Approximately Euro 1.5 billion of Dutch aid money
Logframe, theory-based
growthEconomic Impact
Flow effects: government expenditure, social indicators
Stock effects: debt overhang, creditworthiness, private investment
Outcomes
Policy changeIncrease in flow of resources
Reduction of debt stock
Outputs
Policy conditions
modalitiesDifferentInputs
ConditionalityFlowStock
Financial inputs:modalities of debt relief
Three distinctions: Relief on debt service (flows) or on debt stocks Restructuring versus forgiveness Type of creditor:
Bilateral: aid loans or export credits (“commercial”) Multilateral Private
Debt overhang:The debt Laffer curve
Debt
Expected debt payments
O
A
B
45°
Results: stock effects
Output (efficiency): limited reduction in stocks: annually only 1-4%
Outcomes on private investment, capital inflows: only in Peru, to some extent Jamaica and Bolivia
Debts not sustainable in any country in 1999 Long-term propects for sustainability: bad
Results: flow effects (1)
Outputs: limited reduction in actual payments: Debt service would not have been paid otherwise Debt stock reductions increased actual payments New loans, so new debt payments
Outcomes: some in Bolivia and Jamaica, on government budget
Flow effects (2): Additionality
Debt relief mostly not additional to regular aid from donor viewpoint ….
But largely additional for recipient countries: Part of debt relief from creditors who are no
donors anymore Debt relief substitutes for aid to other countries,
with lower debts
Flow effects (3): bailing out
Multilaterals are bailed out by bilaterals• Bilateral grants used for multilateral debt relief • Preferential creditor status lowers value of
bilateral claims more Paris Club debt relief
Moral hazard with IFIs, so more new loans Inefficient use of aid money: grants to IDA
Replenishment fund etc. to allow loans, then debt relief on same IDA credits
Results: Conditionality effects
Until 1999 condition: IMF agreementLimited effectiveness:
Governments do what they intended to do anyway; domestic political economy decisive
Pressure leads to cosmetic implementation
Many IMF programmes delayed or “off-track”, but always new agreement in HIPC countries
IMF: seal of good behaviour, so new aid IMF is at the same time beneficiary of, and gatekeeper for
international finance, so lack of selectivity
Conclusions
Limited efficiency and effectiveness, so limited impact on economic growth (relevance)
Why? Faulty diagnosis: most countries had solvency problem,
not liquidity problem Too little debt relief, and wrong modalities Too many new loans, also by moral hazard of IFIs
Official creditors do not write-off bad loans IMF conditionality does not work, so adverse selection,
also in aid policies
Changes with HIPC?
More debt relief, larger % forgiveness, but sufficient?
Abundant new loans from IFIs, still moral hazard Conditionality more extensive than ever:
PRSP is added on (ownership?, participation?) “Use” of debt relief often does not make sense
No change in decision making on debt relief and aid still adverse selection
