International borrowing and exhaustible resources: Note on a liquidity creditworthiness conflict

Ernst Mohr

No 2, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: A sovereign debtor facing a credit limit due to unenforceable debt contracts may have an incentive to increase its creditworthiness by making itself subject to more severe sanctions in response to a debt repudiation. It is shown that for a natural resources exporting country this incentive may result in a more resource conserving extraction policy at the expense, of current income. A resource exporting LDC thus may face a conflict between creditworthiness and liquidity which would not have to be faced were the source of income not exhaust ible.

Date: 1986
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