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Sovereign Debt Defaults and Financing Needs

  • Miguel Messmacher
  • Mark Kruger

We construct a financial vulnerability indicator that is consistent with the theoretical literature on determinants of defaults. It is based on the amount of new foreign financing that is needed to avoid a default or an import adjustment, expressed as a proportion of the country's sources of foreign currency. As the need for new foreign financing increases, so does a country's financial vulnerability. The indicator has a higher correlation with default episodes than other indicators used in previous studies. In addition, the level at which it leads to a high probability of default is comparable across countries.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/53.

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Length: 33
Date of creation: 01 Mar 2004
Date of revision:
Handle: RePEc:imf:imfwpa:04/53
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  14. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 03/221, International Monetary Fund.
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