The Inter-American Development Bank is the main source of multilateral financing for economic, social, and institutional development projects as well as trade and regional integration programs in Latin America and the Caribbean.
This report advances the modern thinking about sovereign debt and
public asset management. Traditional analysis of public debt
vulnerability focuses on the level of debt and, at best, on the
currency composition and maturity structure of that debt. The
modern view puts risk management at the center of the analysis. It
follows from this analysis that there is a need for more
sophisticated contingencies and insurance arrangements. The report
facilitates the road toward implementation of the new strategy, not
only through informed advocacy, but also by highlighting practical
obstacles and ways around them. It is a tour de force.
*Ricardo J. Caballero, Ford International Professor of Economics,
Massachusetts Institute of Technology*
Everything you wanted to know about sovereign debt but were afraid
to ask: When, how, does debt become unmanageable? What is the true
cost of default? Why is Latin America debt crisis prone? How far
can countries go in using derivatives, contingent debt or local
currency bonds? What role can international financial institutions
play in implementing new insurance schemes? For all those who
believe, with the authors, that tranquil times are the best to
discuss and introduce new ideas that can prevent the next crisis:
reading this report is a must.
*Daniel Cohen, Professor of Economics, École Normale Superieure,
Paris*
The report provides a comprehensive analysis of both the challenges
that public debt poses for developing economies and a rich set of
new ideas aimed at addressing them. An adaptation of Vito Tanzi’s
famous quote on taxation is an excellent way to summarize the main
lesson of this document: discussions of public debt in developing
countries are not about the pursuit of the optimal but about the
art of the possible. This report shows that indeed this is a fine
art.
*Enrique Mendoza, Professor of International Economics and Finance,
University of Maryland, College Park*
Here we have an invaluable primer of lessons from Latin America on
living with debt to make life in emerging markets less risky in
times to come. Key issues are examined with professional panache:
whether ‘ability’ or ‘willingness to pay’ accounts for default;
what factors explain debt volatility and how to manage them; how
international financial institutions can help mitigate capital
market crises of the twenty-first century. A must-read for
policymakers and aficionados of debt and development
everywhere.
*Marcus Miller, Professor of Economics, University of Warwick*
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