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Borrowing Abroad: The Debtor's Perspective

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  • Richard N. Cooper
  • Jeffrey Sachs

Abstract

This paper addresses the question of external borrowing from the perspective of the borrowing country. The first section sketches a formal framework for optimal borrowing by a developing country, as seen from the planner's point of view. The next three sections use this framework for the development of three important limits on external borrowing: the problem of solvency, the problem of liquidity and the problem created by the possibility of repudiation. The fifth section relates external borrowing to macroeconomic management of the borrowing country, and the sixth section pulls together the many factors that suggest that external debt of a country should be subject to central management or at least surveillance. Following that, we offer some guidelines for limits to the magnitude of external debt, and then discuss the character or mix of external debt. In an appendix, we present various simulation exercises for optimal debt management in a discrete-time infinite-horizon setting.

Suggested Citation

  • Richard N. Cooper & Jeffrey Sachs, 1984. "Borrowing Abroad: The Debtor's Perspective," NBER Working Papers 1427, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1427
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    References listed on IDEAS

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    1. Bhagwati, Jagdish N. & Srinivasan, T. N., 1976. "Optimal trade policy and compensation under endogenous uncertainty: The phenomenon of market disruption," Journal of International Economics, Elsevier, vol. 6(4), pages 317-336, November.
    2. Brecher, Richard A. & Diaz Alejandro, Carlos F., 1977. "Tariffs, foreign capital and immiserizing growth," Journal of International Economics, Elsevier, vol. 7(4), pages 317-322, November.
    3. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
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    Cited by:

    1. Gottlieb, Daniel, 1987. "On the Determinants of a Country's Creditworthiness - The Case of Israel: 1971 to 1983," MPRA Paper 3147, University Library of Munich, Germany.
    2. Belloc, Marianna & Federici, Daniela, 2010. "A two-country NATREX model for the euro/dollar," Journal of International Money and Finance, Elsevier, vol. 29(2), pages 315-335, March.
    3. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
    4. Carolina Alves & Vivienne Boufounou & Konstantinos Dellis & Christos Pitelis & Jan Toporowski, 2016. "Synthesis Report; Empirical analysis for new ways of global engagement," Working papers wpaper163, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.

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