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Limits of the Foreign Debt Burden

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  • Garabed Minassian

Abstract

A simple model of the debt equilibrium under the conditions of a monetary board is developed. The model has three equations. The first one depicts the impact of the debt burden on the economic activity and the economic growth, respectively; the second one represents a relationship between the balance of payment deficit and the economic activity; the third one gives expression to a relationship between the debt burden and the balance of payment deficit. In order to make the system dynamic, it is required to take into account also of the structures of the state budget, but to the extent to which they are revenant to the foreign debt servicing. The model of the debt equilibrium, developed in principle, is applied to evaluate in practice the status and level of the debt burden in Bulgaria. Results from model calculations for three countries - Macedonia, Turkey and Poland are also presented. Findings show that taking into consideration the existing economic reality in Bulgaria in the beginning of the XXI century, the relative foreign debt reduction as an end in itself is not the best macroeconomic solution. Pursuing such a policy could impede the economic growth, which in turn would have a negative impact on the improvement of the international financial position of the country. Requirements come to the fore, that are related with the entire movement of the economy toward higher efficiency and this advance is also a pre-condition for a reduction in the relative debt burden.

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Bibliographic Info

Article provided by Bulgarian Academy of Sciences - Economic Research Institute in its journal Economic Thought.

Volume (Year): (2005)
Issue (Month): 6 ()
Pages: 3-29

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Handle: RePEc:bas:econth:y:2005:i:6:p:3-29

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  1. Bulow, Jeremy & Rogoff, Kenneth, 1990. "Cleaning Up Third World Debt without Getting Taken to the Cleaners," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 4(1), pages 31-42, Winter.
  2. Hélène Poirson & Luca Antonio Ricci & Catherine A. Pattillo, 2002. "External Debt and Growth," IMF Working Papers, International Monetary Fund 02/69, International Monetary Fund.
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