Mobilizing domestic resources for development - Chapter V

External finance is meant to supplement and support developing countries’ domestic resource mobilization. However, since the nineteenth century, developing countries have experienced repeated episodes of rapidly increasing external indebtedness and debt-service burdens that have brought slower growth or recession and eventually produced renegotiation and restructuring. For this reason, the Monterrey Consensus of the International Conference on Financing for Development (United Nations, 2002b, annex) emphasized the importance of sustainable debt levels in mobilizing resources for development. The present chapter analyses the current debate on debt and development in historical perspective. It starts with a brief review of the evolution of developing-country. | External debt 141 Chapter V External debt External finance is meant to supplement and support developing countries domestic resource mobilization. However since the nineteenth century developing countries have experienced repeated episodes of rapidly increasing external indebtedness and debt-service burdens that have brought slower growth or recession and eventually produced renegotiation and restructuring. For this reason the Monterrey Consensus of the International Conference on Financing for Development United Nations 2002b annex emphasized the importance of sustainable debt levels in mobilizing resources for development. The present chapter analyses the current debate on debt and development in historical perspective. It starts with a brief review of the evolution of developing-country debt and rescheduling in the post-war period. The second section surveys measures to deal with the problem of excessive indebtedness such as the Heavily Indebted Poor Countries HIPC Initiative as well as more recent proposals for additional relief for low-income countries and new Paris Club arrangements for middle-income countries. Efficient use of external resources requires an adequate understanding and an operative specification of debt sustainability. The third section presents and critically assesses recent proposals for sustainability to be applied to low-income countries under the fourteenth replenishment of the International Development Association IDA-14 . In the last analysis when failure to attain sustainability produces default renegotiation is necessary. The final section reviews recent experience in this area that suggests the need for urgent action for new approaches to the problem and provides an assessment of various proposals on the table for discussion by the international community. Debt and development The post-war approach to lending to developing countries In the early post-war period it had been assumed that development finance would take place in the form

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