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External Conditions and Debt Sustainability in Latin America

  • Gustavo Adler
  • Sebastian Sosa

Highly favorable external conditions have helped Latin America strengthen its economic fundamentals over the last decade. But, has the region built enough buffers to guard itself from a weakening of the external environment? This paper addresses this question by developing a simple framework that integrates econometric estimates of the effect of global factors on key domestic variables that determine public and external debt dynamics, with the IMF‘s standard debt sustainability framework. Results suggest that, while some countries in the region are well placed to withstand moderate or even large shocks, many would benefit from having stronger buffers to be in a position to deploy countercyclical policies, especially under tail events. External sustainability, on the other hand, does not appear to be a source of concern for most countries.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/27.

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Length: 51
Date of creation: 30 Jan 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/27
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  1. Gabriel Cuadra & Juan Sanchez & Horacio Sapriza, 2010. "Fiscal Policy and Default Risk in Emerging Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 13(2), pages 452-469, April.
  2. Carlo Favero & Francesco Giavazzi, 2007. "Debt and the effects of fiscal policy," Working Papers 07-4, Federal Reserve Bank of Boston.
  3. Jeffrey A. Frankel & Carlos A. Végh & Guillermo Vuletin, 2011. "On Graduation from Fiscal Procyclicality," NBER Working Papers 17619, National Bureau of Economic Research, Inc.
  4. Sebastian Sosa & Gustavo Adler, 2011. "Commodity Price Cycles; The Perils of Mismanaging the Boom," IMF Working Papers 11/283, International Monetary Fund.
  5. repec:pal:imfstp:v:55:y:2008:i:1:p:149-182 is not listed on IDEAS
  6. Leonardo Martinez & Francisco Roch & Juan Hatchondo, 2015. "Fiscal rules and the sovereign default premium," 2015 Meeting Papers 1262, Society for Economic Dynamics.
  7. Fuad Hasanov & Reda Cherif, 2012. "Public Debt Dynamics; The Effects of Austerity, Inflation, and Growth Shocks," IMF Working Papers 12/230, International Monetary Fund.
  8. Kei Kawakami & Rafael Romeu, 2011. "Identifying Fiscal Policy Transmission in Stochastic Debt Forecasts," IMF Working Papers 11/107, International Monetary Fund.
  9. Carrière-Swallow, Yan & Céspedes, Luis Felipe, 2013. "The impact of uncertainty shocks in emerging economies," Journal of International Economics, Elsevier, vol. 90(2), pages 316-325.
  10. Gustavo Adler & Sebastián Sosa, 2014. "Intraregional Spillovers in South America: Is Brazil Systemic After All?," The World Economy, Wiley Blackwell, vol. 37(3), pages 456-480, 03.
  11. Gustavo Adler & Camilo E Tovar Mora, 2012. "Riding Global Financial Waves; The Economic Impact of Global Financial Shocks on Emerging Market Economies," IMF Working Papers 12/188, International Monetary Fund.
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