Public debt is one of the most powerful instruments of economic policy. As a power tool, it can be used to efficiently achieve one’s goals, but can also cause severe harm. This course will describe the costs and benefits of sovereign borrowing, with particular emphasis on the resolution of sovereign debt crises. This is a timely topic because sovereign debt problems, which only concerned developing countries for the past 50 years, are now percolating to the developed economies as well - the recent predicaments of Greece, Iceland, and Ireland have raised the spectre of a default in a high-income country.
The first part of this course will review the main trends in public debt in developed and developing economies and discuss why countries borrow, why they sometimes borrow too much, and why they get into debt crises. It will also introduce some legal principles that make sovereign debt different from commercial debt. The second part of the course will focus on ex ante policies aimed at reducing the likelihood of debt crises, and ex post policies aimed at minimizing the cost of debt crises. It will also discuss the pros and cons of creating a mechanism for the resolution of sovereign defaults.
Delivered by: Division on Globalization and Development Strategies