This paper examines the financial health of the Fiscal Investment and Loan Program (FILP) as of the end of March 2001. We study the financial conditions of FILP recipients, which include public corporations and local governments. We find many are de facto insolvent. Our estimates suggest as much as 75% of the FILP loans are bad. The expected losses are estimated to be about ?75 trillion (over 15% of GDP). We also studied the effects of the FILP reform of April 2001, which tries to introduce market discipline in allocation of FILP funds. No significant changes in financial flow are detected, yet. The financial market seems to differentiate the newly introduced FILP agency bonds, which are supposed to without government guarantee, from government guaranteed bonds. It is too early to tell, however, whether the financial market will become an effective monitor of FILP agencies.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
9385.
Length: Date of creation: Dec 2002 Date of revision: Handle: RePEc:nbr:nberwo:9385
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Find related papers by JEL classification: G2 - Financial Economics - - Financial Institutions and Services G3 - Financial Economics - - Corporate Finance and Governance
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