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When is external debt sustainable?, Volume 1
Author:Kraay, Aart; Nehru, Vikram; Country:World;
Date Stored:2004/06/02Document Date:2004/02/01
Document Type:Policy Research Working PaperSubTopics:Economic Theory & Research; Housing Finance; Banks & Banking Reform; Strategic Debt Management; Environmental Economics & Policies; Payment Systems & Infrastructure
Language:EnglishRegion:The World Region
Report Number:WPS3200Collection Title:Policy, Research working paper ; no. WPS 3200
Volume No:1  

Summary: This paper examines the determinants of "debt distress," which they define as periods in which countries resort to exceptional finance in any of three forms: (1) significant arrears on external debt, (2) Paris Club rescheduling, and (3) nonconcessional International Monetary Fund lending. Using probit regressions, the authors find that three factors explain a substantial fraction of the cross-country and time-series variation in the incidence of debt distress: the debt burden, the quality of policies and institutions, and shocks. They show that these results are robust to a variety of alternative specifications, and that their core specifications have substantial out-of-sample predictive power. The authors also explore the quantitative implications of these results for the lending strategies of official creditors.

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