Helping the Poor to Help Themselves: Debt Relief or Aid
Working Paper 10230
Debt relief is unlikely to stimulate investment and growth in the world's highly indebted poor countries (HIPCs). This is because the HIPCs do not suffer from debt overhang. The principal obstacle to investment and growth in the world's poorest countries is a lack of basic economic institutions that provide the foundation for profitable economic activity. If the goal is to help poor countries build the institutions that best suit their development needs, then the energy and resources currently devoted to the HIPC initiative could be more effectively employed as direct foreign aid.
Jochnick, Chris and Fraser A. Preston (eds.) Sovereign Debt at the Crossroads. Oxford University Press, 2006.