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International Debt Service and Economic Growth: Some Simple Analytics

Author

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  • Martin Feldstein
Abstract
Any arrangement that is to serve as a long-term framework for international debt management must permit a politically acceptable rate of economic growth in the debtor countries while gradually improving the financial positions of the creditor banks. In addition, a realistic debt management strategy must maintain enough new lending to the debtor countries to provide an incentive for continued compliance with debt service responsibilities. This paper establishes the conditions under which these three goals are compatible. The analysis indicates that Argentina, Brazil and Mexico are now all capable of achieving significant rates of economic growth without debt write-downs or interest rate reductions. They do require additional amounts of credit but the resulting increases in the absolute size of their debts is compatible with declining ratios of debt to their own exports and to the total earnings of the creditor banks. Stated differently, limiting the ratio of debt service payments to GNP to country-specific standards, whether by long-term agreements or by annual negotiations, can achieve economic growth while improving the financial conditions of the creditor banks.

Suggested Citation

  • Martin Feldstein, 1986. "International Debt Service and Economic Growth: Some Simple Analytics," NBER Working Papers 2076, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:2076
    Note: ITI IFM
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    Citations

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    Cited by:

    1. Rudiger Dornbusch, 1989. "Debt Problems and the World Macroeconomy," NBER Chapters, in: Developing Country Debt and the World Economy, pages 299-312, National Bureau of Economic Research, Inc.
    2. König, Peter, 1989. "Towards a solution of developing countries' debt crisis: Strengthening the weakest link," Discussion Papers, Series II 94, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    3. Rudiger Dornbusch & Thomas S. Johnson & Anne O. Krueger, 1988. "Our LDC Debts," NBER Chapters, in: The United States in the World Economy, pages 161-214, National Bureau of Economic Research, Inc.
    4. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and the World Economy, pages 225-236, National Bureau of Economic Research, Inc.
    5. Paul R. Krugman, 1989. "Private Capital Flows to Problem Debtors," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 299-330, National Bureau of Economic Research, Inc.
    6. Jeffrey D. Sachs, 1987. "International Policy Coordination: The Case of the Developing Country Debt Crisis," NBER Working Papers 2287, National Bureau of Economic Research, Inc.
    7. Saungweme, Talknice & Odhiambo, Nicholas M, 2019. "The impact of debt service on economic growth:Empirical evidence from Zambia," Working Papers 25652, University of South Africa, Department of Economics.
    8. Erdal Karagol, 2004. "A Critical Review of External Debt and Economic Growth Relationship: A Lesson for Indebtedness Countries," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 4(1), pages 69-78.
    9. Stanley Fischer, 1989. "Resolving the International Debt Crisis," NBER Chapters, in: Developing Country Debt and the World Economy, pages 313-324, National Bureau of Economic Research, Inc.
    10. Stanley Fischer, 1989. "Resolving the International Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 359-386, National Bureau of Economic Research, Inc.
    11. Tilemahos Efthimiadis & Panagiotis Tsintzos, 2012. "The Internal-External Debt Ratio and Economic Growth," Economics Bulletin, AccessEcon, vol. 32(1), pages 941-951.
    12. Paul R. Krugman, 1988. "Market-Based Debt-Reduction Schemes," NBER Working Papers 2587, National Bureau of Economic Research, Inc.
    13. Jose L. Tongzon, 2002. "The Economies of Southeast Asia, Second Edition," Books, Edward Elgar Publishing, number 2029.

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