Policy Inconsistency and External Debt Service

13 Pages Posted: 15 Feb 2006

See all articles by Michael P. Dooley

Michael P. Dooley

University of California at Santa Cruz; National Bureau of Economic Research (NBER)

Lars E. O. Svensson

Stockholm School of Economics; Stockholm University - Institute for International Economic Studies (IIES); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: April 1990

Abstract

In this paper it is argued that the willingness of debtors to make external debt-service payments reflects, in part, their inability to credibly and permanently suspend debt service. The benefits of a credible debt-service suspension would include increased private investment. But this would, in turn, tend to create conditions in which it would then be optimal for the government to resume payments. Thus, debt remains a threat even after the announcement of suspension of debt service. It follows that the expected benefits of such a suspension are limited and may be offset by penalties imposed by creditors.

JEL Classification: 430

Suggested Citation

Dooley, Michael P. and Svensson, Lars E.O., Policy Inconsistency and External Debt Service (April 1990). IMF Working Paper No. 90/35, Available at SSRN: https://ssrn.com/abstract=884731

Michael P. Dooley (Contact Author)

University of California at Santa Cruz ( email )

Santa Cruz, CA 95064
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National Bureau of Economic Research (NBER)

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Lars E.O. Svensson

Stockholm School of Economics ( email )

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Stockholm, 11383
Sweden

HOME PAGE: http://larseosvensson.se

Stockholm University - Institute for International Economic Studies (IIES) ( email )

Stockholm, SE-10691
Sweden

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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