Has debt relief been successful in permanently reducing debt levels?
(ii) Has debt relief been successful in increasing GDP growth and social expenditure? (iii) Is debt relief preferable to aid? (iv) Does debt relief bring additional resources? Has debt relief been successful in permanently reducing debt levels? Past experience suggests that the answer to the above question is simple: NO! New York University Economist William Easterly studied the behavior of a set of countries that received debt relief over the 1979-1997 period and found that debt service for these countries increased throughout the period. How can increasing debt be reconciled with a large debt relief effort? A possible explanation is bad luck, but Easterly found no support for this hypothesis. His favorite explanation, instead, is that high levels of debt are due to the presence of policymakers with a high discount rate; that’s economic jargon to describe individuals who prefer to consume as much as they can today without worrying too much about what will happen tomorrow. If higher le
