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What Does Debt Relief Do for Development?

November 5, 2018

Washington, DC and Online

  • High levels of household debt are a common problem in developed and developing economies, and evidence from the global financial crisis suggests that high household debt-to-GDP ratios can be an important source of financial instability, prolonged recessions, and reduced income growth in the longer run. In the aftermath of the financial crisis, policymakers have therefore sought to identify policies that can effectively reduce household debt, and direct credit market interventions—such as debt moratoria or debt relief for highly-indebted households—have been proposed as a potential solution. Such programs have, however, remained controversial because there is limited evidence on their ability to resolve debt overhang and stimulate economic activity, and because critics worry that debt forgiveness may generate moral hazard on the part of banks and borrowers and do lasting damage to a culture of prudent borrowing and repayment.

    In this policy research talk, economist Martin Kanz will provide new perspectives on these issues based on a set of recent research papers in which he examines the impact of one of the largest borrower bailouts in history, enacted by the government of India against the backdrop of the 2008-2009 global financial crisis. Based on the findings of this work, the talk will explore the impact of debt relief from three angles: First, what is the immediate impact of debt forgiveness on beneficiary households? In particular, is there evidence that the bailout resolved debt overhang, restored access to credit, and had a positive effect on investment and real economic activity? Second, what is the impact of debt forgiveness on borrower moral hazard, credit allocation, and the risk-taking behavior of banks? Third, what are the political economy effects of debt relief, how was the bailout perceived by voters, and how might this compromise the optimal design of credit market interventions in the future?

    The presentation will relate these findings to recent work on household debt and macroeconomic stability, as well as the ongoing debate on debt relief for HIPC countries. 

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    Martin Kanz


    Martin Kanz is an Economist in the finance team of the Development Research Group. His research focuses on banking, behavioral economics, and the political economy of the credit market. Martin has led numerous field experiments and impact evaluations on financial sector topics, primarily in India and Southeast Asia. His research has appeared in the Quarterly Journal of Economics, Journal of Political Economy, Journal of Finance, and other leading academic publications. Martin received his A.B. in Economics from Harvard University, his M.Sc. in Development Economics from Oxford, and his Ph.D. from Harvard University.


    Asli Demirgüç-Kunt

    Director of Research

    Asli Demirgüç-Kunt is the Director of Research in the World Bank. After joining the Bank in 1989 as a Young Economist, she has held different positions, including Director of Development Policy, Chief Economist of Financial and Private Sector Development Network, and Senior Research Manager, doing research and advising on financial sector and private sector development issues.

    Paloma Anos Casero

    Director, Macroeconomics, Trade & Investment

    Ms. Anos Casero, a Spanish National, joined the Bank in 2001 as a Young Professional. She has since held various technical and managerial positions in operations in several regions, her current assignment being Director in the Macroeconomics, Trade & Investment (MTI) Global Practice. Her experience spans low-income countries as small as Moldova and Sao Tome and Principe, and middle-income countries as large as Russia, Mexico, and Argentina. Paloma joined the World Bank Group in 2001 as Young Professional and has served in a variety of roles, including Sector Manager, Sector Leader, and Lead Economist.

  • The Policy Research Talks showcase the latest findings of the research department and their implications for World Bank operations. The monthly event facilitates a dialogue between researchers and operational staff so that we can challenge and contribute to the World Bank's intellectual climate and re-examine conventional wisdom in current development theories and practices. Read More »

Event Details

  • Time: 12:30 - 2:00PM ET
  • Location: Washington, DC (Room JB1-080)