Cover IMF Working Papers
The Liquidation of Government Debt
Author: Ms. Carmen Reinhart and M. Belen Sbrancia
Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 007
Language:
English
Publication Date:
21 Jan 2015
DOI:
https://doi.org/10.5089/9781484369234.001
ISBN:
9781484369234
ISSN:
1018-5941
Pages:
47
Keywords:
WP; debt; nominal interest rate; government debt; inflation rate; margin requirement; deleveraging; inflation; financial repression; public debt; liquidation year; free market; World War II; coupon rate; GDP ratio; debt liquidation; Depression debt; Real interest rates; Negative interest rates; Debt reduction; Africa; Global; Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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High public debt often produces the drama of default and restructuring. But debt is also reduced through financial repression, a tax on bondholders and savers via negative or belowmarket real interest rates. After WWII, capital controls and regulatory restrictions created a captive audience for government debt, limiting tax-base erosion. Financial repression is most successful in liquidating debt when accompanied by inflation. For the advanced economies, real interest rates were negative ½ of the time during 1945–1980. Average annual interest expense savings for a 12—country sample range from about 1 to 5 percent of GDP for the full 1945–1980 period. We suggest that, once again, financial repression may be part of the toolkit deployed to cope with the most recent surge in public debt in advanced economies.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund