Debt Intolerance

77 Pages Posted: 19 Aug 2003  

Carmen M. Reinhart

Peter G. Peterson Institute for International Economics; National Bureau of Economic Research (NBER)

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Miguel A. Savastano

Monetary and Capital Markets Departrment

Date Written: August 2003

Abstract

This paper introduces the concept of debt intolerance,' which manifests itself in the extreme duress many emerging markets experience at debt levels that would seem manageable by advanced country standards. We argue that safe' external debt-to-GNP thresholds for debt intolerant countries are low, perhaps as low as 15 percent in some cases. These thresholds depend on a country's default and inflation history. Debt intolerance is linked to the phenomenon of serial default that has plagued many countries over the past two centuries. Understanding and measuring debt intolerance is fundamental to assess the problems of debt sustainability, debt restructuring, capital market integration, and the scope for international lending to ameliorate crises. Our goal is to make a first pass at quantifying debt intolerance, including delineating debtors' clubs and regions of vulnerability, on the basis on a history of credit events going back to the 1820s for over 100 countries.

Suggested Citation

Reinhart, Carmen M. and Rogoff, Kenneth and Savastano, Miguel A., Debt Intolerance (August 2003). NBER Working Paper No. w9908. Available at SSRN: https://ssrn.com/abstract=435482

Carmen M. Reinhart (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

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Washington, DC 20036
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National Bureau of Economic Research (NBER)

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Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

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617-495-4022 (Phone)
617-495-7730 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Miguel A. Savastano

Monetary and Capital Markets Departrment ( email )

700 19th Street NW
Washington, DC 20431
United States

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