IDEAS home Printed from https://ideas.repec.org/a/bfr/fisrev/200562.html
   My bibliography  Save this article

Public debt sustainability and crises in emerging market countries: a presentation of the concepts and diagnostic tools

Author

Listed:
  • Bachellerie, A.
  • Couillault, B.

Abstract

The growth of public debt in emerging market countries during the 1990s and recent financial crises have once again highlighted the risks associated with fragile public finances in these countries. The debt restructurings of the 1980s resulted from excessive debt vis-à-vis international banks. The 1990s saw a strong surge in financing on bond markets, which also brought risks with it and contributed to changing the nature and pattern of sovereign debt crises. The 1990s were marked by crises in investor confidence leading to sudden reversals in capital flows and sharp exchange rate movements, in turn sparking contagion phenomena between different economic sectors and countries. In this context, the government has a crucial role to play in limiting the impact of the drop in revenue. When public finances are fragile, doubts about the government’s ability to meet the financial cost of its intervention can contribute to prolonging the crisis or to triggering unsustainable debt dynamics. Emerging market countries that are heavily indebted in foreign currencies and subject to intermittent access to financial markets are particularly vulnerable to changes in international investor sentiment. Against this backdrop, the formulation of diagnoses making it possible to identify the risks weighing on public finances in emerging market countries is an important issue for the international community. In the light of recent experience, over the past few years the IMF has developed an analytical framework that should contribute to better account being taken of potential vulnerabilities in this area. This article begins by recalling that the rise in public debt in emerging market countries has gone hand in hand with the growth in debt financing and that “capital account crises” have had a significant impact on public finances. It reviews the traditional analysis of debt sustainability and the factors that may explain the instability of debt dynamics in emerging market countries. Lastly, it presents the methods for debt sustainability analysis used by the IMF and the difficulties involved in making diagnoses.

Suggested Citation

  • Bachellerie, A. & Couillault, B., 2005. "Public debt sustainability and crises in emerging market countries: a presentation of the concepts and diagnostic tools," Financial Stability Review, Banque de France, issue 6, pages 63-80, June.
    • Handle: RePEc:bfr:fisrev:2005:6:2
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    References listed on IDEAS

    as
    1. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2007. "Currency Mismatches, Debt Intolerance, and the Original Sin: Why They Are Not the Same and Why It Matters," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 121-170, National Bureau of Economic Research, Inc.
    2. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    3. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82, National Bureau of Economic Research, Inc.
    4. Murray Petrie & Mr. Richard Hemming, 2000. "A Framework for Assessing Fiscal Vulnerability," IMF Working Papers 2000/052, International Monetary Fund.
    5. Guillermo A. Calvo, 1998. "CAPITAL FLOWS AND CAPITAL-MARKET CRISES: The Simple Economics of Sudden Stops," Journal of Applied Economics, Taylor & Francis Journals, vol. 1(1), pages 35-54, November.
    6. Diamond, Douglas W, 1989. "Reputation Acquisition in Debt Markets," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 828-862, August.
    7. Guillermo A. Calvo & Alejandro Izquierdo, 2004. "On the empirics of Sudden Stops: the relevance of balance-sheet effects," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
    8. Carmen M. Reinhart, 2002. "Default, Currency Crises, and Sovereign Credit Ratings," The World Bank Economic Review, World Bank, vol. 16(2), pages 151-170, August.
    9. Andre Cartapanis, 2004. "Le declenchement des crises de change : qu'avons-nous appris depuis dix ans ?," Economie Internationale, CEPII research center, issue 97, pages 5-48.
    10. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(4), pages 459-472, November.
    11. Chamon, Marcos, 2007. "Can debt crises be self-fulfilling?," Journal of Development Economics, Elsevier, vol. 82(1), pages 234-244, January.
    12. Reinhart, Carmen & Calvo, Guillermo, 2000. "When Capital Inflows Come to a Sudden Stop: Consequences and Policy Options," MPRA Paper 6982, University Library of Munich, Germany.
    13. International Monetary Fund, 2004. "Fiscal Policy and Debt Sustainability: Cardoso's Brazil, 1995-2002," IMF Working Papers 2004/156, International Monetary Fund.
    14. Mr. Theodore M. Barnhill & Mr. George Kopits, 2003. "Assessing Fiscal Sustainability Under Uncertainity," IMF Working Papers 2003/079, International Monetary Fund.
    15. Enrica Detragiache, 1996. "Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pages 545-570, September.
    16. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "Serial Default and the "Paradox" of Rich-to-Poor Capital Flows," American Economic Review, American Economic Association, vol. 94(2), pages 53-58, May.
    17. Mr. Brad Setser & Nouriel Roubini & Mr. Christian Keller & Mr. Mark Allen & Mr. Christoph B. Rosenberg, 2002. "A Balance Sheet Approach to Financial Crisis," IMF Working Papers 2002/210, International Monetary Fund.
    18. Mr. Amadou N Sy & Mr. Andrea Pescatori, 2004. "Debt Crises and the Development of International Capital Markets," IMF Working Papers 2004/044, International Monetary Fund.
    19. Mr. Peter J Montiel & Mr. Samir Jahjah, 2003. "Exchange Rate Policy and Debt Crises in Emerging Economies," IMF Working Papers 2003/060, International Monetary Fund.
    20. Morris Goldstein, 2003. "Debt Sustainability, Brazil, and the IMF," Working Paper Series WP03-1, Peterson Institute for International Economics.
    21. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 51(3), pages 393-414.
    22. Bank for International Settlements, 2002. "The development of bond markets in emerging economies," BIS Papers, Bank for International Settlements, number 11.
    23. Mr. Nigel A Chalk & Mr. Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 2000/081, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pradhan, Krishanu, 2014. "Assessment of India's fiscal and external sector vulnerability: A balance sheet approach," Working Papers 327, Institute for Social and Economic Change, Bangalore.
    2. Krishanu Pradhan, 2018. "Assessment of India’s Fiscal and External Sector Vulnerability: A Balance Sheet Approach," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 12(3), pages 308-332, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mr. Philippe D Karam & Mr. Douglas Hostland, 2005. "Assessing Debt Sustainability in Emerging Market Economies Using Stochastic Simulation Methods," IMF Working Papers 2005/226, International Monetary Fund.
    2. Frankel, Jeffrey, 2010. "Monetary Policy in Emerging Markets," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 25, pages 1439-1520, Elsevier.
    3. Javier Gómez Pineda, 2004. "A Framework for Macroeconomic Stability in Emerging Market Economies," Borradores de Economia 320, Banco de la Republica de Colombia.
    4. Carlos Díaz Alvarado & Alejandro Izquierdo & Ugo Panizza, 2004. "Fiscal Sustainability in Emerging Market Countries with an Application to Ecuador," Research Department Publications 4371, Inter-American Development Bank, Research Department.
    5. Mr. Alexander Culiuc, 2020. "Real Exchange Rate Overshooting in Large Depreciations: Determinants and Consequences," IMF Working Papers 2020/060, International Monetary Fund.
    6. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    7. Keskinsoy, Bilal, 2017. "Taxi, Takeoff and Landing: Behavioural Patterns of Capital Flows to Emerging Markets," MPRA Paper 78129, University Library of Munich, Germany.
    8. Halil Ibrahim Aydin & Cafer Kaplan & Mehtap Kesriyeli & Erdal Ozmen & Cihan Yalcin & Serkan Yigit, 2006. "Corporate Sector Financial Structure in Turkey : A Descriptive Analysis," Working Papers 0607, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    9. Piersanti, Giovanni, 2012. "The Macroeconomic Theory of Exchange Rate Crises," OUP Catalogue, Oxford University Press, number 9780199653126.
    10. Samir Jahjah & Bin Wei & Vivian Zhanwei Yue, 2013. "Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1275-1300, October.
    11. Bruce N. Lehmann & David M. Modest, 1985. "The Empirical Foundations of the Arbitrage Pricing Theory I: The Empirical Tests," NBER Working Papers 1725, National Bureau of Economic Research, Inc.
    12. Furceri, Davide & Zdzienicka, Aleksandra, 2012. "How costly are debt crises?," Journal of International Money and Finance, Elsevier, vol. 31(4), pages 726-742.
    13. Bordo, Michael D. & Meissner, Christopher M. & Stuckler, David, 2010. "Foreign currency debt, financial crises and economic growth: A long-run view," Journal of International Money and Finance, Elsevier, vol. 29(4), pages 642-665, June.
    14. Dumitriu, Ramona & Stefanescu, Razvan, 2013. "External debt management in Romania," MPRA Paper 52475, University Library of Munich, Germany, revised 25 Sep 2013.
    15. Cheng, Gong, 2015. "Balance sheet effects, foreign reserves and public policies," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 146-165.
    16. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    17. Carmen M. Reinhart & Vincent R. Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 5(1), pages 9-62.
    18. Lorenzo Menna & Martin Tobal, 2018. "Financial and price stability in emerging markets: the role of the interest rate," BIS Working Papers 717, Bank for International Settlements.
    19. Olivier Jeanne, 2003. "Comprendre les crises financières internationales," Revue d'Économie Financière, Programme National Persée, vol. 70(1), pages 23-31.
    20. Peter Montiel, 2013. "The Simple Analytics of Sudden Stops," Open Economies Review, Springer, vol. 24(2), pages 267-281, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bfr:fisrev:2005:6:2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael brassart (email available below). General contact details of provider: https://edirc.repec.org/data/bdfgvfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.