External Conditions and Debt Sustainability in Latin America

54 Pages Posted: 22 Feb 2013

See all articles by Gustavo Adler

Gustavo Adler

International Monetary Fund (IMF) - Research Department

Sebastiàn Sosa

International Monetary Fund (IMF) - Western Hemisphere Department

Date Written: January 2013

Abstract

Highly favorable external conditions have helped Latin America strengthen its economic fundamentals over the last decade. But, has the region built enough buffers to guard itself from a weakening of the external environment? This paper addresses this question by developing a simple framework that integrates econometric estimates of the effect of global factors on key domestic variables that determine public and external debt dynamics, with the IMF's standard debt sustainability framework. Results suggest that, while some countries in the region are well placed to withstand moderate or even large shocks, many would benefit from having stronger buffers to be in a position to deploy countercyclical policies, especially under tail events. External sustainability, on the other hand, does not appear to be a source of concern for most countries.

Keywords: Latin America, debt sustainability, external debt, public debt

JEL Classification: C32, E62, F41, F47, H62, H63

Suggested Citation

Adler, Gustavo and Sosa, Sebastian, External Conditions and Debt Sustainability in Latin America (January 2013). IMF Working Paper No. 13/27, Available at SSRN: https://ssrn.com/abstract=2222491

Gustavo Adler (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Sebastian Sosa

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States

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