Sovereign Debt Defaults and Financing Needs
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Summary:
We construct a financial vulnerability indicator that is consistent with the theoretical literature on determinants of defaults. It is based on the amount of new foreign financing that is needed to avoid a default or an import adjustment, expressed as a proportion of the country's sources of foreign currency. As the need for new foreign financing increases, so does a country's financial vulnerability. The indicator has a higher correlation with default episodes than other indicators used in previous studies. In addition, the level at which it leads to a high probability of default is comparable across countries.
Series:
Working Paper No. 2004/053
Subject:
Debt default Debt service Exports External debt Financial sector policy and analysis Financial sector risk International trade Public debt
English
Publication Date:
March 1, 2004
ISBN/ISSN:
9781451847413/1018-5941
Stock No:
WPIEA0532004
Pages:
33
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