Sovereign Debt Defaults and Financing Needs

Miguel Messmacher and Mark Kruger ()

No 2004/053, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: WP; debt burden; debt indicator; threshold probability; current account; debt-restructuring agreement; sovereign debt defaults; financial crisis; early warning indicators; debt sustainability; probability of default; standard deviation; growth rate; debt service increase; default probability; Debt service; Debt default; Exports; Financial sector risk (search for similar items in EconPapers)
Pages: 33
Date: 2004-03-01
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Citations: View citations in EconPapers (15)

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