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Debt Reduction in Latin America and the Caribbean

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  • Powell, Andrew
  • Panizza, Ugo

Abstract

During the pandemic, public debt in Latin America and the Caribbean rose to more than 70 percent of GDP, and countries are now attempting to lower debt ratios. We analyze past debt reduction episodes and find inflation and the real interest rate were the most frequent main drivers, while higher growth, fiscal consolidation and debt restructuring were relatively rare. Interestingly, inflation episodes tended to be with independent central banks and low real interest rates, highlighting the value of monetary credibility. We find debt reduction is not associated with a rise in inequality nor in unemployment, and growth or fiscal consolidation may improve these indicators.

Suggested Citation

  • Powell, Andrew & Panizza, Ugo, 2023. "Debt Reduction in Latin America and the Caribbean," IDB Publications (Working Papers) 13290, Inter-American Development Bank.
    • Handle: RePEc:idb:brikps:13290
    DOI: http://dx.doi.org/10.18235/0005339
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    References listed on IDEAS

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    1. Anna Gelpern & Ugo Panizza, 2022. "Enough Potential Repudiation: Economic and Legal Aspects of Sovereign Debt in the Pandemic Era," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 545-570, August.
    2. Barry Eichengreen & Ugo Panizza, 2016. "A surplus of ambition: can Europe rely on large primary surpluses to solve its debt problem?," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 31(85), pages 5-49.
    3. Alberto Alesina & Carlo Favero & Francesco Giavazzi, 2019. "Effects of Austerity: Expenditure- and Tax-Based Approaches," Journal of Economic Perspectives, American Economic Association, vol. 33(2), pages 141-162, Spring.
    4. Tim Willems & Jeromin Zettelmeyer, 2022. "Sovereign Debt Sustainability and Central Bank Credibility," Annual Review of Financial Economics, Annual Reviews, vol. 14(1), pages 75-93, November.
    5. Erosa, Andres & Ventura, Gustavo, 2002. "On inflation as a regressive consumption tax," Journal of Monetary Economics, Elsevier, vol. 49(4), pages 761-795, May.
    6. Kris James Mitchener & Christoph Trebesch, 2021. "Sovereign Debt in the 21st Century," NBER Working Papers 28598, National Bureau of Economic Research, Inc.
    7. Mr. Etibar Jafarov & Mr. Rodolfo Maino & Mr. Marco Pani, 2019. "Financial Repression is Knocking at the Door, Again," IMF Working Papers 2019/211, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Debt; Fiscal policy; Inflation; Debt restructuring;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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