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External Debt Sustainability: Theory and Empirical Evidence

  • Marco Arnone

    (Catholic University of Milan)

  • Luca Bandiera

    (World Bank)

  • Andrea Presbitero

    (Politechnic University of Marche Italy)

This paper is a review of the different approaches on external debt sustainability. The Heavily Indebted Poor Country (HIPC) Initiative was launched to assure a permanent exit from debt dependence. However, the IMF-World Bank program is not without faults, in particular for what concerns debt sustainability analysis. The aim of this work is to present the IMF-World Bank approach to debt sustainability, together with the other approaches in the literature. We show that a new and broader framework is emerging to address the main shortcomings of the standard analysis, namely, the effects that large external debts and deficits have on growth and the macroeconomic environment.

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File URL: http://econwpa.repec.org/eps/if/papers/0512/0512007.pdf
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Paper provided by EconWPA in its series International Finance with number 0512007.

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Length: 48 pages
Date of creation: 25 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0512007
Note: Type of Document - pdf; pages: 48
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Sebastian Edwards, 2002. "Debt Relief and Fiscal Sustainability," NBER Working Papers 8939, National Bureau of Economic Research, Inc.
  2. Claessens, Stijn & Detragiache, Enrica & Kanbur, Ravi & Wickham, Peter, 1996. "Analytical aspects of the debt problems of heavily indebted poor countries," Policy Research Working Paper Series 1618, The World Bank.
  3. repec:rus:hseeco:123922 is not listed on IDEAS
  4. Rodriguez, Carlos Alfredo, 1989. "The external effects of public sector deficits," Policy Research Working Paper Series 299, The World Bank.
  5. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  6. Nicolas Depetris Chauvin & Aart Kraay, 2005. "What Has 100 Billion Dollars Worth of Debt Relief Done for Low- Income Countries?," International Finance 0510001, EconWPA.
  7. Aart Kraay & Vikram Nehru, 2006. "When Is External Debt Sustainable?," World Bank Economic Review, World Bank Group, vol. 20(3), pages 341-365.
  8. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
  9. Morris Goldstein, 2003. "Debt Sustainability, Brazil, and the IMF," Working Paper Series WP03-1, Peterson Institute for International Economics.
  10. Cuddington, John T., 1997. "Analyzing the sustainability of fiscal deficitsin developing countries," Policy Research Working Paper Series 1784, The World Bank.
  11. Claudio M. LOSER, 2004. "External Debt Sustainability: Guidelines For Low- And Middle-Income Countries," G-24 Discussion Papers 26, United Nations Conference on Trade and Development.
  12. repec:imf:imfwpa:03/187 is not listed on IDEAS
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  14. Eaton, Jonathan, 1993. "Sovereign Debt: A Primer," World Bank Economic Review, World Bank Group, vol. 7(2), pages 137-72, May.
  15. Asiedu, Elizabeth, 2003. "Debt relief and institutional reform: a focus on Heavily Indebted Poor Countries," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(4), pages 614-626.
  16. Imbs, Jean & Rancière, Romain, 2005. "The Overhang Hangover," CEPR Discussion Papers 5210, C.E.P.R. Discussion Papers.
  17. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  18. Dooley, Michael P, 1989. "Debt Relief and Leveraged Buy-Outs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 30(1), pages 71-75, February.
  19. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
  20. William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 46.
  21. repec:imf:imfwpa:97/24 is not listed on IDEAS
  22. repec:imf:imfwpa:04/160 is not listed on IDEAS
  23. repec:imf:imfwpa:02/69 is not listed on IDEAS
  24. Hjertholm, Peter, 2001. "Debt Relief and the Rule of Thumb: Analytical History of HIPC Debt Sustainability Targets," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  25. repec:imf:imfwpa:03/249 is not listed on IDEAS
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