HIPCS DEBT REVIEW OF THE ISSUES

A group of low-income countries (the HIPCs), most of which ave in Sub- Saharan Africa, has continued to experience external debt problems. Be cause the economic characteristics and the external imbalances of the HIPCs are very different from those of middle-income countries, the ap proach to analysing debt problems and debt reduction initiatives that was developed during the debt crisis of the 1980s needs to be modified and complemented in many important ways. This paper tries to fill thi s gap by revisiting the methodological issues underlying the analysis of debt sustainability, as well as the theory and empirical evidence o f the effects of large debts on economic performance. It finds that (f urther) debt reduction for the HIPCs may only have positive effects on economic performance if it is seen as endorsing strong and effective programmes of economic stabilisation and reform. This judgment will ha ve to be made on a case-by-case basis. The paper concludes with a numb er of principles which should guide any practical mechanisms for debt relief.