Living with Debt: How to Limit the Risks of Sovereign Finance (David Rockefeller Inter-American Development Bank)

Contents......Page 5
Preface......Page 7
Acknowledgments......Page 9
Executive Summary......Page 11
I. STYLIZED FACTS......Page 17
CHAPTER 1 Introduction......Page 19
DOES PUBLIC DEBT MATTER?......Page 21
WHEN PUBLIC DEBT IS IRRELEVANT: RICARDIAN EQUIVALENCE......Page 22
WHAT IS THE STORY IN LATIN AMERICA AND THE CARIBBEAN?......Page 23
DEBT RISKS......Page 24
STRUCTURE OF THE REPORT AND MAIN FINDINGS......Page 27
CHAPTER 2 Public Debt in Latin America and around the World......Page 31
PUBLIC DEBT IN LATIN AMERICA AND THE CARIBBEAN......Page 33
HOW DO LATIN AMERICA AND THE CARIBBEAN COMPARE WITH THE REST OF THE WORLD?......Page 49
THE CROSS-COUNTRY PICTURE......Page 51
SUMMING UP......Page 55
SOME SIMPLE DEBT ARITHMETIC......Page 57
IS IT POSSIBLE TO EXPLAIN WHAT DRIVES THE UNEXPLAINED PART OF DEBT?......Page 65
HOW SHOULD DEFICITS MOVE, AND HOW DO THEY MOVE IN REALITY?......Page 67
WHY PROCYCLICALITY?......Page 70
IS IT PROCYCLICALITY OR REVERSE CAUSALITY?......Page 71
SUMMING UP......Page 73
II. INTERNATIONAL BORROWING......Page 77
THE LATIN AMERICAN BOND MARKET IN HISTORY: 1820–1913......Page 79
WHY WAS LATIN AMERICA THE FAVORITE OF THE MARKETS?......Page 84
CHARACTERISTICS OF THE HISTORICAL SOVEREIGN BOND MARKET......Page 88
AFTER THE COLLAPSE......Page 91
FROM THE DEBT CRISIS TO THE NEW BOND MARKET......Page 95
THE RISE OF THE EMERGING MARKET ASSET CLASS......Page 96
SUDDEN STOPS AND CONTAGION......Page 101
GLOBAL FINANCIAL MARKETS AND SELF-FULFILLING CRISES......Page 105
CREDIT RATINGS......Page 109
CHAPTER 6 The Role of Multilateral Lending......Page 121
BROAD TRENDS IN SOVEREIGN EXTERNAL DEBT......Page 122
DIFFERENCES BETWEEN MULTILATERAL AND PRIVATE LENDERS......Page 125
MODELING MULTILATERAL LENDING......Page 127
ARE MULTILATERALS CATALYTIC?......Page 131
DIFFERENCES BETWEEN MULTILATERAL AND BILATERAL LENDERS......Page 132
MULTILATERALS: CONCLUDING COMMENTS......Page 135
III. THE DOMESTIC MARKET......Page 137
CHAPTER 7 The Dawn of the Domestic Bond Market......Page 139
THE EVOLUTION OF THE DOMESTIC BOND MARKET......Page 141
THE DEVELOPMENT OF THE DOMESTIC BOND MARKET: WHAT DO THE DATA SAY?......Page 143
SIZE DOES MATTER......Page 145
THE MARKET FOR DOMESTIC GOVERNMENT BONDS......Page 146
PRIVATE ISSUERS......Page 153
INTERACTIONS BETWEEN THE GOVERNMENT AND PRIVATE BOND MARKETS......Page 159
THE IMPORTANCE OF HAVING THE RIGHT PLUMBING......Page 161
SUMMING UP......Page 165
THE GROWTH OF INSTITUTIONAL INVESTORS......Page 167
PENSION FUNDS......Page 170
MUTUAL FUNDS......Page 174
BANKS IN THE DOMESTIC GOVERNMENT BOND MARKET......Page 176
HOW TO MAKE GOVERNMENT BONDS ATTRACTIVE TO INSTITUTIONAL INVESTORS......Page 178
PROTECTING INSTITUTIONAL INVESTORS FROM VORACIOUS GOVERNMENTS......Page 181
IV. DEBT AND THE ECONOMY......Page 185
CHAPTER 9 The Political Economy of Debt......Page 187
THE FISCAL CHOICES OF OPPORTUNISTIC POLICYMAKERS......Page 188
DISTRIBUTIONAL CONFLICTS, ELECTORAL SYSTEMS, AND FISCAL POLICY......Page 189
BUDGET INSTITUTIONS......Page 191
THE ROLE OF THE COURTS......Page 192
THE INTERACTION BETWEEN POLITICAL FAILURES AND FINANCIAL MARKET IMPERFECTIONS......Page 193
THE COMPLEX INTERACTION BETWEEN DEBT AND ECONOMIC GROWTH......Page 201
DEBT AND PUBLIC SECTOR INVESTMENT IN PHYSICAL AND SOCIAL CAPITAL......Page 207
WHAT CAN BE LEARNED FROM THE DEBT RELIEF EXPERIENCE?......Page 212
THE RESEARCH AND POLICY AGENDA IS STILL OPEN......Page 220
THE STANDARD APPROACH......Page 223
SUSTAINABILITY IN LATIN AMERICA USING THE STANDARD APPROACH......Page 224
INCORPORATING VOLATILITY......Page 228
THE UNCERTAINTY APPROACH......Page 232
THE NET WORTH APPROACH REVISITED......Page 235
DEBT SUSTAINABILITY AND CREDIT RATINGS IN LATIN AMERICA......Page 237
HAS DEBT SUSTAINABILITY IMPROVED IN LATIN AMERICA?......Page 238
CHAPTER 12 The Costs of Default......Page 241
WHAT IS A DEFAULT?......Page 242
COSTS OF DEFAULT......Page 243
ABILITY TO PAY OR WILLINGNESS TO PAY?......Page 252
V. TOWARDS SAFER DEBT......Page 253
CHAPTER 13 The Risks of Sovereign Finance......Page 255
CURRENCY AND MATURITY RISK......Page 256
IS THERE A CURRENCY-MATURITY TRADE-OFF?......Page 259
INFLATION INDEXATION......Page 262
OTHER SOURCES OF RISK......Page 263
DOES IT MATTER WHERE TO ISSUE?......Page 266
CAN RISKS BE REDUCED?......Page 267
CHAPTER 14 Lowering the Risks of Sovereign Finance......Page 269
WHY DO SOVEREIGNS BORROW?......Page 270
CONTROLLING THE FLOW OF DEBT......Page 273
MANAGING THE STOCK OF DEBT......Page 275
REFORMING THE INTERNATIONAL FINANCIAL ARCHITECTURE......Page 282
FINAL REMARKS......Page 290
APPENDIX: Public Debt in Latin America and the Caribbean: Country Profiles......Page 293
References......Page 321