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External and Domestic Debt Constraints of LDCs: a Theory with a Numerical Application to Brazil and Mexico

In: Global Macroeconomics: Policy Conflict and Cooperation

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  • Daniel Cohen

    (CEPREMAP
    CEPR)

Abstract

In a psrevious work (1985), I have argued that most debtor nations need allocate no more than 15 per cent of their exports to the service of their debt in order to be declared solvent. Brazil spent twice this amount on debt service between 1983 and 1986 and — as a result — her debt-to-export ratio went down substantially (from four to three). An often-heard argument was that a debtor should hurry to bring down its debt-to-export ratio so as to allow ‘voluntary lending’ to resume. In other words, the debt-to-export ratio should go down, so as to go up later on! It is hard to think of any optimising model which would predict this result (except for short-term fluctuations).1

Suggested Citation

  • Daniel Cohen, 1987. "External and Domestic Debt Constraints of LDCs: a Theory with a Numerical Application to Brazil and Mexico," International Economic Association Series, in: Ralph C. Bryant & Richard Portes (ed.), Global Macroeconomics: Policy Conflict and Cooperation, chapter 8, pages 279-306, Palgrave Macmillan.
    • Handle: RePEc:pal:intecp:978-1-349-18916-8_8
    DOI: 10.1007/978-1-349-18916-8_8
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    References listed on IDEAS

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    1. Daniel Cohen & Jeffrey Sachs, 1991. "Growth and External Debt Under Risk of Debt Repudiation," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 437-472, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Garima Vasishtha, 2010. "Domestic versus External Borrowing and Fiscal Policy in Emerging Markets," Review of International Economics, Wiley Blackwell, vol. 18(5), pages 1058-1074, November.
    2. Ritu Anand & Sweder van Wijnbergen, 1988. "Inflation, External Debt and Financial Sector Reform: A Quantitative Approach To Consistent Fiscal Policy With An Application to Turkey," NBER Working Papers 2731, National Bureau of Economic Research, Inc.
    3. Joaquim Oliveira Martins & Dominique Plihon, 1990. "L'impact des transferts internationaux d'épargne sur les déséquilibres extérieurs," Économie et Statistique, Programme National Persée, vol. 232(1), pages 33-48.

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