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Policy Brief 11-17

Debt Relief for Egypt?

by John Williamson, Peterson Institute for International Economics
and Mohsin S. Khan, Peterson Institute for International Economics

November 2011


The government of Egypt recently stated that external financial assistance is necessary in the present economic situation and has expressed a strong preference for receiving it in part via debt relief. Williamson and Khan explore whether there is a case for debt relief and if so what form this relief should take. They review the cases of Egypt in an earlier era and other middle-income countries—Iraq, Argentina, and Nigeria—that benefited from debt relief, as well as the loan guarantees provided by the United States to Israel, to draw out the lessons and implications for Egypt. In terms of reducing debt service payments, debt relief was certainly successful in each of the countries reviewed.

The authors conclude with recommendations for a new debt relief program for Egypt. The traditional approach to debt relief would be through a Paris Club debt rescheduling. The United States could call for the Paris Club to meet to consider Egyptian debt, use its influence to persuade the Egyptians to request a meeting, and then call on its partners to make offers similar to those that President Obama already made in his speech on May 19, 2011. A more promising approach might be for the United States to use its convening power to persuade other countries ("Friends of Egypt") to make debt relief arrangements similar to those that the United States has already offered to Egypt. Complementary to this process, the United States could also urge its partners to make loan guarantees similar to those that it itself has offered.

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