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External Debt Dynamics and Current Account Sustainability

  • Noppadol Buranathanung

    (Bank of Thailand)

  • Chaipat Poonpatpibul

    (Bank of Thailand)

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    The objective of this study is to investigate the sustainability of external debt and current account in Thailand. The solvency and vulnerability indicators demonstrated increasingly worsening external conditions before the crisis in 1997 but a distinct improvement has been witnessed afterwards. The steady state current account deficit calibration with the incorporation of FDI and short-term debt considerations indicates that, in the long term, Thailand’s current account deficits should not consistently exceed the rage of 2.3 to 3.3 percent of GDO. Furthermore, the results from and econometric investigation mostly confirmed the case of external debt unsustainability in the past. Assuming that the GDP gap will close up in the medium term, the future assessment points out that the current account will eventually turn negative, leading to and increase in external debt. To prevent the external debt from reaching the unsustainable level, the current account deficits should not be allowed to persistently rise above the steady state range.

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    Paper provided by Economic Research Department, Bank of Thailand in its series Working Papers with number 2003-10.

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    Length: 33 pages
    Date of creation: Feb 2003
    Date of revision:
    Handle: RePEc:bth:wpaper:2003-10
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    1. Leonardo Hernández & Peter Montiel, 2001. "Post-Crisis Exchange Rate Policy in Five Asian Countries: Filling in the “Hollow Middle”?," Department of Economics Working Papers 2001-05, Department of Economics, Williams College.
    2. David W. Wilcox, 1987. "The substainability of government deficits: implications of the present- value borrowing constraint," Working Paper Series / Economic Activity Section 77, Board of Governors of the Federal Reserve System (U.S.).
    3. Tiff Macklem & David Rose & Robert Tetlow, . "GOVERNMENT DEBT AND DEFICITS IN CANADA: A Macro Simulation Analysis," Working Papers 95-4, Bank of Canada.
    4. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
    5. Susan M. Collins & Won Am Park, 1988. "External Debt and Macroeconomic Performance in South Korea," NBER Working Papers 2596, National Bureau of Economic Research, Inc.
    6. Jonathan David Ostry, 1997. "Current Account Imbalances in AsEAN Countries; Are they a Problem?," IMF Working Papers 97/51, International Monetary Fund.
    7. G. Russell Kincaid & Martin Fetherston & Peter Isard & Hamid Faruqee, 2001. "Methodology for Current Account and Exchange Rate Assessments," IMF Occasional Papers 209, International Monetary Fund.
    8. Claessens, Stijn, 1992. "The Optimal Currency Composition of External Debt: Theory and Applications to Mexico and Brazil," World Bank Economic Review, World Bank Group, vol. 6(3), pages 503-28, September.
    9. Enrica Detragiache & Antonio Spilimbergo, 2001. "Crises and Liquidity; Evidence and Interpretation," IMF Working Papers 01/2, International Monetary Fund.
    10. Sawada, Yasuyuki, 1994. "Are the heavily indebted countries solvent?: Tests of intertemporal borrowing constraints," Journal of Development Economics, Elsevier, vol. 45(2), pages 325-337, December.
    11. Raffaela Giordano, 2001. "Optimal Debt Maturity under EMU," Temi di discussione (Economic working papers) 401, Bank of Italy, Economic Research and International Relations Area.
    12. Donal McGettigan, 2000. "Current Account and External Sustainability in the Baltics, Russia, and Other Countries of the Former Soviet Union," IMF Occasional Papers 189, International Monetary Fund.
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