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External Conditions and Debt Sustainability in Latin America

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Author Info

  • Gustavo Adler
  • Sebastian Sosa

Abstract

Highly favorable external conditions have helped Latin America strengthen its economic fundamentals over the last decade. But, has the region built enough buffers to guard itself from a weakening of the external environment? This paper addresses this question by developing a simple framework that integrates econometric estimates of the effect of global factors on key domestic variables that determine public and external debt dynamics, with the IMF‘s standard debt sustainability framework. Results suggest that, while some countries in the region are well placed to withstand moderate or even large shocks, many would benefit from having stronger buffers to be in a position to deploy countercyclical policies, especially under tail events. External sustainability, on the other hand, does not appear to be a source of concern for most countries.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/27.

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Length: 51
Date of creation: 30 Jan 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/27

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Related research

Keywords: Economic conditions; Latin America; Debt sustainability analysis; Public debt; External debt; Cross country analysis; debt dynamics; debt ratios; current account; external shocks; external debt sustainability; fiscal sustainability; current account balance; reserve accumulation; fiscal indicators; fiscal policy; current accounts; current account surpluses; current account balances; public expenditures; taxation; key fiscal indicators; debt reduction; fiscal space; currency debt; fiscal positions; debt relief; debt restructuring; central bank; external financing; foreign currency debt; current account adjustment; domestic currency; account deficits; debt management; fiscal revenues; fiscal reaction functions; net debt; fiscal stimulus; fiscal solvency; current account deficits; external indebtedness; short-term debt; total external debt; primary fiscal balance; fiscal discipline; sovereign default;

References

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  1. Kei Kawakami & Rafael Romeu, 2011. "Identifying Fiscal Policy Transmission in Stochastic Debt Forecasts," IMF Working Papers 11/107, International Monetary Fund.
  2. Frankel, Jeffrey A. & Vegh, Carlos A. & Vuletin, Guillermo, 2013. "On graduation from fiscal procyclicality," Journal of Development Economics, Elsevier, vol. 100(1), pages 32-47.
  3. Sebastian Sosa & Gustavo Adler, 2012. "Intra-Regional Spillovers in South America," IMF Working Papers 12/145, International Monetary Fund.
  4. Evan Tanner & Issouf Samake, 2008. "Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey," IMF Staff Papers, Palgrave Macmillan, vol. 55(1), pages 149-182, April.
  5. Carrière-Swallow, Yan & Céspedes, Luis Felipe, 2013. "The impact of uncertainty shocks in emerging economies," Journal of International Economics, Elsevier, vol. 90(2), pages 316-325.
  6. Gabriel Cuadra & Juan Sanchez & Horacio Sapriza, 2010. "Fiscal Policy and Default Risk in Emerging Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 452-469, April.
  7. Carlo Favero & Francesco Giavazzi, 2007. "Debt and the effects of fiscal policy," Working Papers 07-4, Federal Reserve Bank of Boston.
  8. Fuad Hasanov & Reda Cherif, 2012. "Public Debt Dynamics," IMF Working Papers 12/230, International Monetary Fund.
  9. Gustavo Adler & Camilo Ernesto Tovar Mora, 2012. "Riding Global Financial Waves," IMF Working Papers 12/188, International Monetary Fund.
  10. Juan Carlos Hatchondo & Leonardo Martinez & Francisco Roch, 2012. "Fiscal rules and the sovereign default premium," Working Paper 12-01, Federal Reserve Bank of Richmond.
  11. Sebastian Sosa & Gustavo Adler, 2011. "Commodity Price Cycles," IMF Working Papers 11/283, International Monetary Fund.
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Cited by:
  1. Gustavo Adler & Nicolas E. Magud, 2013. "Four Decades of Terms-of-Trade Booms," IMF Working Papers 13/103, International Monetary Fund.

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