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Session 3 - Public Sovereign Debt - Coggle Diagram
Session 3 - Public Sovereign Debt
Watershed Even
SSA: debt stocks increased by 630% (constant USD) from 1970-80
Debt Crises masively increased
Not having a huge debt burden is a necessary (not sufficient) condition for economic development
if your debt is unsustainable the rest doesnt matter
debt crisis is the first thing that needs to be resolved
LA: massive borrowing from private banks
Governments borrow to close fiscal gaps
from their own citizens (domestic)
banks, mutual funds, pension funds...
just for profit
these crises ususally in latin america or east asia
TWO TIPES OF CONFLICTS
Debtors vs Creditors
how much debt should be reduced etc
its almost impossible to determine wheter the country is able to repay the debt or not
usually job of the IMF (but even IMF is not objective because it has also paid money)
“The core problem in managing sovereign debt crises is the lack of an effective global framework or set of institutional arrangements for restructuring government debt obligations when they become unsustainable” (Brooks and Helleiner [wk3], p. 1085)
there is many ways to measure Debt
numerator is burden
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denominator is the characteristic of the economy (exports or GDP)
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Creditors vs Creditors
usally in domestic context this gets resolved through bankrupcy courts
in the international economy its intransically economical
debt restructuring efforts
The Paris Club
Each creditor country reduces debt of each borrower, according to broad framework of Paris Club
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HIPC
Highly Indebted Poor Countries
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extrenally (from other countries)
in foreign currency
Crises reasons
borrowers fault (bad domestic policy)
lender fault (bad debt structure)
external crises
public soverign debt crises - usually reffers to SSA borrowing from public borrowers
Crisis Solution
5 concepts
Debt Restructuring
changing the terms of a country’s debt—for example by extending maturities, reducing interest rates, or cutting the amount owed—so the country can avoid default and regain debt sustainability.
default
Countries may stop making payments, but eventually they resume
Debt Sustainability
A country’s public debt is considered sustainable if the government is able to meet all its current and future payment obligations without exceptional financial assistance or going into default
but how do you know what its future obligations will be? => its extremely difficult to predict
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Debt Overhamg
unsustainable debt that drags the country down
if debt in itself make economic growth very difficult than the way you adress the issue of debt can be 'growing out of debt' => for this you need to cancel the debt
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