External Debt to the Private Sector and the Price of Bank Loans

29 Pages Posted: 25 May 2009

See all articles by Issam Hallak

Issam Hallak

European Commission Joint Research Center; KU Leuven - Faculty of Business and Economics (FEB)

Multiple version iconThere are 2 versions of this paper

Date Written: May 1, 2009

Abstract

Since the 1990’s, developing countries have privatized their manufacturing and banking sectors. As a result, a substantially larger share of external debt has been contracted by the private sector. We examine the effects on bank loan prices as a result of this major change in the international debt markets. We find that, in general, the private sector’s external debts negatively affect the price of bank loans. Yet this impact is mitigated by the presence of potential market distortions, due to, for example, fixed foreign exchange regimes that the private sector may benefit from, but which also can exacerbate any potential negative aspect. Even so, as a general rule, the private sector’s external debts promote financial stability. Adequate market conditions, however, should be implemented to prevent potential market distortions.

Keywords: International debt crises, International capital flows, Private sector, Bank loans

JEL Classification: F34, G32

Suggested Citation

Hallak, Issam, External Debt to the Private Sector and the Price of Bank Loans (May 1, 2009). CAREFIN Research Paper No. 8/09. Available at SSRN: https://ssrn.com/abstract=1409550

Issam Hallak (Contact Author)

European Commission Joint Research Center ( email )

1049
Belgium

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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