Suchergebnisse

Domestic public debt issued by emerging markets has risen significantly relative to international debt in recent years. Some recent empirical evidence also suggests that sovereigns have defaulted differentially on debt held by domestic and external creditors. Standard models of sovereign debt, however, mainly focus on how the actions of foreign creditors influence default decisions of sovereigns. Contrasting this one-sided focus, this paper adds to a new theoretical literature that points at the possibility of default on domestic debt and the consequences of doing so. It presents a model of an emerging market economy in which the government can selectively default on its domestic or external debt obligations. The model shows that the differential ability of domestic and foreign creditors to punish the government creates a gap in the expected default costs to the sovereign, and hence a differential in its propensity to default on its domestic versus foreign debt. The extent to which the possibility of differential treatment of creditors affects the composition of debt is explored. It shows that a country characterized by volatile output, sovereign risk, and costly tax collection will want to borrow in domestic markets as well as in international capital markets. The optimal allocation of debt between domestic and foreign creditors can thus be viewed as the government's purchase of insurance against macroeconomic shocks that affect its budget.

The International Monetary Fund (IMF) recently adopted the 2007 Decision on Bilateral Surveillance Over Members' Policies, a landmark reform that modernizes the general principles of IMF surveillance. However, support for the reform was not unanimous, and doubts have been expressed about how the Decision would be applied in practice. The authors assess the first year of the Decision's implementation in Article IV reports. Using a questionnaire based on the key aspects of the Decision, they evaluate Article IV reports published before and after the adoption of the new Decision for a set of 24 countries. The authors find that the Decision has significantly increased the overall quality of Article IV reports, with improvements noted in emerging-market, advanced, and developing countries. Bilateral surveillance is more focused on external stability and core macroeconomic policies. Exchange rate analysis, in particular, has improved significantly. The authors note, however, that the integration with multilateral surveillance remains relatively weak and that cross-country spillovers still do not receive sufficient attention. Moreover, while most reports examine domestic stability in some detail, the link between domestic stability and external stability is not adequately analyzed. On the issue of the evenhanded application of the Decision, the authors conclude that implementation has been broadly similar across country income groups, although differences remain for specific aspects of the Decision.

Since 2002, spreads on emerging market sovereign debt have fallen to historical lows. Given the close links between sovereign spreads, capital flows to emerging markets, and economic growth, understanding the factors driving these spreads is very important. We address this issue in two stages. First, we use factor analysis to study the extent to which emerging market bond spreads are driven by global factors, as opposed to country-specific macroeconomic fundamentals. Using data on different U.S. asset classes, we identify a common factor, linked to global financial conditions. Second, we use this common factor in a panel estimation framework to analyze the degree to which the fall in spreads is driven by better macroeconomic policies. Our results show that the common factor is not responsible for the reduction in spreads. Instead, emerging markets have benefited considerably from better macroeconomic policies, including lower inflation and lower debt. Therefore, a reversal of the benign global conditions need not necessarily have a substantial negative impact on financing conditions for emerging markets.

India's federal system is distinguished by tax and expenditure assignments that result in large vertical fiscal imbalances, and consequent transfers from the central government to the state governments. Several channels are used for these transfers: the Finance Commission, the Planning Commission, and central government ministries. We use panel data on center-state transfers to examine how the economic and political importance of the states influences the level and the composition of per capita transfers to the states, as well as differences in temporal patterns of Planning Commission and Finance Commission transfers. We find evidence that states with indications of greater bargaining power seem to receive larger per capita transfers, and that there is greater temporal variation in Planning Commission transfers.

India's federal system is distinguished by tax and expenditure assignments that result in large vertical fiscal imbalances, and consequent transfers from the central government to the state governments. Several channels are used for these transfers: the Finance Commission, the Planning Commission, and central government ministries. We use panel data on center-state transfers to examine how the economic and political importance of the states influences the level and the composition of per capita transfers to the states, as well as differences in temporal patterns of Planning Commission and Finance Commission transfers. We find evidence that states with indications of greater bargaining power seem to receive larger per capita transfers, and that there is greater temporal variation in Planning Commission transfers.

India's federal system is distinguished by tax and expenditure assignments that result in large vertical fiscal imbalances, and consequent transfers from the central government to the state governments. Several channels are used for these transfers: the Finance Commission, the Planning Commission, and central government ministries. We use panel data on center-state transfers to examine how the economic and political importance of the states influences the level and the composition of per capita transfers to the states, as well as differences in temporal patterns of Planning Commission and Finance Commission transfers. We find evidence that states with indications of greater bargaining power seem to receive larger per capita transfers, and that there is greater temporal variation in Planning Commission transfers.