Helping The Poor to Help Themselves: Debt Relief or Aid?

Peter Blair Henry and
Peter Blair Henry
Peter Blair Henry Senior Fellow - Hoover Institution and Freeman Spogli Institute, Stanford University
Serkan Arslanalp
Serkan Arslanalp
Serkan Arslanalp Advisor - International Monetary Fund

November 1, 2003


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.