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Interest rates, official lending, and the debt crisis: A reassessment

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  • Demirguc-Kunt, Asli
  • Detragiache, Enrica

Abstract

The authors document and try to explain the sizable cross-country differences in interest rates on external debt paid by a group of highly indebted developing countries in 1973-89. They find that Indonesia and Turkey, which are often praised for not rescheduling in the 1980s, paid interest rates substantially below LIBOR - and avoided the interest rate shock of the early 1980s. Differences in the default-risk premium explain some of the variation among countries, but different degrees of access to official loans carrying highly subsidized interest rates played the major role. In the sample they studied, they found no evidence that debt at floating interest rates was more expensive than debt at fixed rates. For the period 1981-89, it is possible to control for differences in the currency composition of debt, and the results are essentially unchanged. These results suggest that studies of economic performance among the highly indebted countries during the debt crisis should control for cross-country differences in the burden of interest payments.
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Suggested Citation

  • Demirguc-Kunt, Asli & Detragiache, Enrica, 1994. "Interest rates, official lending, and the debt crisis: A reassessment," Journal of Development Economics, Elsevier, vol. 44(2), pages 263-285, August.
    • Handle: RePEc:eee:deveco:v:44:y:1994:i:2:p:263-285
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    Cited by:

    1. Klimenko, Mikhail M., 2002. "Trade interdependence, the international financial institutions, and the recent evolution of sovereign-debt renegotiations," Journal of International Economics, Elsevier, vol. 58(1), pages 177-209, October.
    2. Miles B. Cahill & Paul N. Isely, 2000. "The Relationship between Aid and Debt in Developing Countries," The American Economist, Sage Publications, vol. 44(2), pages 78-91, October.
    3. Hussein, Khaled A. & de Mello, Luiz Jr., 2001. "Is foreign debt portfolio management efficient in emerging economies?," Journal of Development Economics, Elsevier, vol. 66(1), pages 317-335, October.
    4. Mr. Khaled Hussein, 2001. "Is Foreign Debt Portfolio Management Efficient in Emerging Economies?," IMF Working Papers 2001/121, International Monetary Fund.
    5. Jane Mpapalika, 2020. "Alternative Financing Instruments for African Economies," 2020 Papers pmp2, Job Market Papers.
    6. Steven B. Kamin & K von Kleist, 1999. "The evolution and determinants of emerging markets credit spreads in the 1990s," BIS Working Papers 68, Bank for International Settlements.
    7. Eaton, Jonathan & Fernandez, Raquel, 1995. "Sovereign debt," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 3, pages 2031-2077, Elsevier.
    8. Steven B. Kamin & Karsten von Kleist, 1999. "The evolution and determinants of emerging market credit spreads in the 1990s," International Finance Discussion Papers 653, Board of Governors of the Federal Reserve System (U.S.).

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