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Mr. Erik Offerdal

Abstract

The overall theme of this chapter is: How concerned should policy-makers in Central America be about current levels of public sector debt?1 The general answer is that there is reason to be quite concerned, not only because debt levels are high in some of the countries, but equally important because: (i) all Central American countries remain highly vulnerable to adverse shocks; and (ii) they are constrained in their ability to formulate effective policy responses to such shocks. Thus, the basic policy recommendation of this chapter is similar to that suggested by Fischer (2001): ‘Countries that are vulnerable because they operate in emerging markets need to make themselves less vulnerable by having smaller debts’.