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When is external debt sustainable?

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  • Kraay, Aart
  • Nehru, Vikram

Abstract

This paper examines the determinants of"debt distress,"which they define as periods in which countries resort to exceptional finance in any of three forms: (1) significant arrears on external debt, (2) Paris Club rescheduling, and (3) nonconcessional International Monetary Fund lending. Using probit regressions, the authors find that three factors explain a substantial fraction of the cross-country and time-series variation in the incidence of debt distress: the debt burden, the quality of policies and institutions, and shocks. They show that these results are robust to a variety of alternative specifications, and that their core specifications have substantial out-of-sample predictive power. The authors also explore the quantitative implications of these results for the lending strategies of official creditors.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3200.

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Date of creation: 01 Feb 2004
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Handle: RePEc:wbk:wbrwps:3200

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Keywords: Banks&Banking Reform; Economic Theory&Research; Strategic Debt Management; Environmental Economics&Policies; Payment Systems&Infrastructure; Economic Theory&Research; Strategic Debt Management; Banks&Banking Reform; Environmental Economics&Policies; Housing Finance;

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  1. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
  2. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," NBER Working Papers 9908, National Bureau of Economic Research, Inc.
    • Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  3. Andrew Berg & Jeffrey Sachs, 1988. "The Debt Crisis: Structural Explanations of Country Performance," NBER Working Papers 2607, National Bureau of Economic Research, Inc.
  4. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
  5. Carmen M. Reinhart, 2002. "Default, Currency Crises, and Sovereign Credit Ratings," World Bank Economic Review, World Bank Group, World Bank Group, vol. 16(2), pages 151-170, August.
  6. repec:rus:hseeco:123922 is not listed on IDEAS
  7. Cohen, Daniel, 1996. "The sustainability of African debt," Policy Research Working Paper Series 1621, The World Bank.
  8. Lloyd-Ellis, H. & McKenzie, G. W. & Thomas, S. H., 1990. "Predicting the quantity of LDC debt rescheduling," Economics Letters, Elsevier, vol. 32(1), pages 67-73, January.
  9. Nancy Birdsall & Stijn Claessens & Ishac Diwan, 2003. "Policy Selectivity Forgone: Debt and Donor Behavior in Africa," World Bank Economic Review, World Bank Group, World Bank Group, vol. 17(3), pages 409-435, December.
  10. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity," IMF Working Papers 01/2, International Monetary Fund.
  11. Lynn Aylward & Rupert Thorne, 1998. "An Econometric Analysis of Countries' Repayment Performance to the International Monetary Fund," IMF Working Papers 98/32, International Monetary Fund.
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