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When is external debt sustainable?
 
Author:Kraay, Aart; Nehru, Vikram; Collection Title:Policy, Research working paper ; no. WPS 3200
Country:World; Date Stored:2004/06/02
Document Date:2004/02/01Document Type:Policy Research Working Paper
SubTopics:Environmental Economics & Policies; Economic Theory & Research; Payment Systems & Infrastructure; Housing Finance; Banks & Banking Reform; Strategic Debt ManagementLanguage:English
Region:The World RegionReport Number:WPS3200
Volume No:1 of 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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