Abstract
This paper reviews the IMF DSA (Debt Sustainability Analysis) framework. We first examine the concept of debt sustainability, and argue that the evaluation exercise necessarily entails putting into question market expectations embodied in yield spreads. When the views of the analyst on the capacity of debt repayment differ from the ones reflected in market interest rate premiums, the use of market interest rates for assessing debt sustainability leads to an inconsistency that will in turn bias the assessment. We then show that IMF projections for assessing debt sustainability have been repeatedly biased, which may have contributed to distort the timing of sovereign debt restructurings and the consequent processes of renegotiation. We conclude with a discussion on how the existing DSA framework could be improved.
Acknowledgments
This paper is based on the discussion from the authors on the IMF Frameworks for Assessing Debt Sustainability at a CIGI-IPD Conference on Sovereign Debt Restructuring at Columbia University. We are thankful to the participants of that conference, to participants at the Economics Seminar of the Javeriana University of Bogota, the RIDGE workshops at the Central Bank of Uruguay and the Universidad de Buenos Aires, to the Deputy Chief of the IMF Debt Policy Division Ali Abbas for his response to our discussion, to Santiago Camara, Joseph Stiglitz, Stavros Zenios and Sergio Chodos for valuable comments and suggestions, and to Luis Morano for excellent research assistance. Martin Guzman is thankful to the Institute for New Economic Thinking for financial support.
References
Alesina, Alberto and Silvia Ardagna (2010) “Large Changes in Fiscal Policy: Taxes versus Spending.” In: Tax Policy and the Economy, Volume 24, The University of Chicago Press, pp. 35–68.10.1086/649828Search in Google Scholar
Blanchard, Olivier and Daniel Leigh. “Growth Forecast Errors and Fiscal Multipliers”, IMF Working Paper, Research Department, WP/13/1.10.5089/9781475576443.001Search in Google Scholar
Bohn, Henning (1995) “The Sustainability of Budget Deficits in a Stochastic Economy,” Journal of Money, Credit and Banking, 27:257–271.10.2307/2077862Search in Google Scholar
Bohn, Henning (1998) “The Behavior of US Public Debt and Deficits,” Quarterly Journal of Economics, 113:949–963.10.1162/003355398555793Search in Google Scholar
Bohn, H. (2008) “The Sustainability of Fiscal Policy in the United States.” In: (Neck, R. and J. E. Sturm, eds.), Sustainability of Public Debt, Cambridge, MA: MIT Press, pp. 15–49.10.7551/mitpress/9780262140980.003.0002Search in Google Scholar
Brooks, Skylar, Martin Guzman, Domenico Lombardi and Joseph E. Stiglitz (2015) “Identifying and Resolving Intercreditor and Debtor-creditor Equity Issues in Sovereign Debt Restructuring,” CIGI Policy Brief, 53.Search in Google Scholar
Calvo, Guillermo: “Servicing the Public Debt: The Role of Expectations,” American Economic Review, 78:647–661.Search in Google Scholar
Consiglio, Andrea and Stavros A. Zenios (2015) “Risk Management Optimization for Sovereing Debt Restructuring.” Journal of Globalization and Development, 6(2):181–213.10.1515/jgd-2015-0015Search in Google Scholar
Eyraud L and A Weber (2013) “The Challenge of Debt Reduction during Fiscal Consolidation,” IMF working papers 13/67.10.5089/9781475553864.001Search in Google Scholar
Ghosh, Atish R., Jun I. Kim, Enrique G. Mendoza, Jonathan D. Ostry and Mahvash S. Qureshi (2013) “Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies,” The Economic Journal, 123:F4–F30.10.1111/ecoj.12010Search in Google Scholar
Guzman, Martin and Joseph Stiglitz (2015) “Creating a Framework for Sovereign Debt Restructuring that Works.” In: Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises, Chapter 1. New York: Columbia University Press (forthcoming).10.7312/columbia/9780231179263.001.0001Search in Google Scholar
Guzman, Martin, José Antonio Ocampo and Joseph E. Stiglitz (2016) Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises. Columbia University Press. Forthcoming.10.7312/columbia/9780231179263.001.0001Search in Google Scholar
Heymann, Daniel (1996) “Una nota sobre indicadores de la deuda externa.” Revista de Economía, 3:25–36.Search in Google Scholar
Heymann, Daniel (2009) “Macroeconomics of Broken Promises.” In: Macroeconomics in the Small and the Large: Essays on Microfoundations, Macroeconomic Applications and Economic History in Honor of Axel Leijonhufvud, 74.Search in Google Scholar
International Monetary Fund (2002) “Assessing Sustainability.” Prepared by the Policy Development and Review Department, in consultation with the Fiscal Affairs, International Capital Markets, Monetary and Exchange Affairs, and Research Departments, approved by Timothy Geithner.Search in Google Scholar
International Monetary Fund (2011) “Modernizing the Framework for Fiscal Policy and Public Debt Sustainability Analysis.” Prepared by the Fiscal Affairs Department and the Strategy, Policy, and Review Department, approved by Carlo Cottarelli and Reza Moghadam.10.5089/9781498338639.007Search in Google Scholar
International Monetary Fund (2013a) “Staff Guidance Note for Public Debt Sustainability Analysis in Market-Access Countries.” Prepared by the Strategy, Policy, and Review Department in collaboration with the Fiscal Affairs Department, approved by Siddharth Tiwari.10.5089/9781498341844.007Search in Google Scholar
International Monetary Fund (2013b) “Greece: Ex Post Evaluation of Exceptional Access under the 2010 Stand-By Arrangement.” IMF Country Report No.13/156, June.10.5089/9781484387894.002Search in Google Scholar
International Monetary Fund, Strengthening the Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring, October (2014).10.5089/9781498342797.007Search in Google Scholar
Jayadev, Arjun and Mike Konczal (2010) “The Boom not the Slump: The Right Time for Austerity.” University of Massachusetts Boston, ScholarWorks at UMass Boston, Economics Faculty Publication Series.Search in Google Scholar
Jayadev, Arjun, and Mike Konczal (2015) “Searching for Expansionary Austerity,” University of Massachusetts Boston Working Paper.Search in Google Scholar
Jordà, Òscar and Alan M. Taylor (2013) The Time for Austerity: Estimating the Average Treatment Effect of Fiscal Policy. No. w19414. National Bureau of Economic Research.10.3386/w19414Search in Google Scholar
Krugman, Paul (2013) “How the Case for Austerity has Crumbled,” The New York Review of Books, June 6, 2013.Search in Google Scholar
Krugman, Paul (2015) “The Expansionary Austerity Zombie,” The Conscience of a Liberal, The New York Times, November 20, 2015.Search in Google Scholar
Miller, Marcus, and Lei Zhang (2014) “Saving the euro: self-fulfilling crisis and the ‘Draghi put’,” in Joseph Stiglitz and Daniel Heymann, eds.: Life After Debt: The Origins and Resolutions of Debt Crisis, Palgrave, pp. 227–241.10.1057/9781137411488_14Search in Google Scholar
Rosnick, David and Mark Weisbrot (2007) “The IMF’s Flawed Growth Projections For Argentina and Venezuela.” CEPR Publications.Search in Google Scholar
Schadler, Susan (2014) “The IMF’s Preferred Creditor Status: Does It Still Make Sense After the Euro Crisis.” CIGI Policy Brief, 37.Search in Google Scholar
Timmermann, A. (2006) “An Evaluation of the World Economic Outlook Forecasts,” IMF Working Paper No. 06.Search in Google Scholar
©2015 by De Gruyter
