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Public debt sustainability in the northern countries of Latin America

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Public debt sustainability in the northern countries of Latin America

Author: Paunovic, Igor Physical Description: p. 95-112 Date: December 2005 ECLAC symbol: LC/G.2287-P

Description

An analysis of public debt indicators in eight northern countries of
Latin America reveals that Nicaragua and Honduras are the most
vulnerable; Panama, the Dominican Republic, Costa Rica, and El Salvador
are moderately vulnerable; while Mexico and Guatemala have debt levels
that are not considered dangerous. Nonetheless, a subsequent review of
four indicators of fiscal sustainability shows only Mexico to be well
positioned under all criteria; Costa Rica and Guatemala display a number
of minor problems, while various special circumstances explain the
favourable results obtained by Nicaragua and the Dominican Republic;
and El Salvador, Honduras and Panama will be unable to sustain their
2004 fiscal policy for very long. Lastly, analysis of the sensitivity of the
debt to a sudden stop in foreign capital inflows suggests the need for a
cautious attitude towards the future trend of the public debt in the face of
rising international interest rates.