Dropping the debt for the new millenium: is it such a good idea?

Abstract

This paper examines the economic analyses and popular rhetoric surrounding the debt relief initiatives of Jubilee 2000www.jubilee2000uk.org and the World Bankwww.worldbank.org. It is pointed out that simplistic calls to drop the debt may be counter-productive. There is no point in just demonizing debt. It has to be asked if debt cancellation is a particularly effective use of scarce aid resources. A serious look at historical evidence is required. In particular we consider the views of William Easterly on the adverse effects of continuing waves of debt relief on the governments of impoverished countries. We provide a brief empirical analysis in a panel data set using fixed effects estimation. Although our results are not consistent with Easterly's, many of the points that he and others have raised cannot simply be set aside