Why Heavily Indebted Poor Countries Have Failed to Pay Their Debt?

This paper, in using cross-section pooled logit, probit, and fixed-effects logit models, empirically explores the main factors affecting the rescheduling of contractual debt-service payments by heavily indebted poor countries (HICPs) in the late 1980s and the 1990s. The results seem to suggest that HICPs past external debt, per-capital income level, GDP growth rate, trade openness, foreign-currency reserves, and capital inflows are core factors affecting debt servicing. The results here and other studies seem to suggest that poverty and past accumulated debt are the cardinal factors responsible for the failure of poor nations in meeting their contractual debt obligations. This may seem to support the call for debt relief for poor nations, as further supply of loans to these nations would simply lead them to a notoriously known problem of "circular financing," hence, taking more expensive fresh loans to pay back cheaper old ones, leaving the circle unbroken, and poor nations poor forever.