Sovereign Debt Crisis and International Financial Architecture

Seminar paper from the year 2006 in the subject Business economics - Economic Policy, grade: 2.0, University of Osnabrück (Fachbereich Internationale Wirtschaftspolitik), course: Schuldenkrisen, language: English, abstract: If we have a look at the composition of total debt of different countries it is easy to

see (Figure 1.2) that from 1992 to 2002 the advanced countries¿ total debts mainly

consisted of domestic currency, whereas those of emerging market countries where

mainly borrowed in foreign currency. If we focus our view on sovereign debt only,

this difference vanishes. From 1980 to 2003 about 99.7 percent (Table 1) of sovereign

debt in emerging market countries was borrowed in foreign currency. In advanced

economies it was slightly less (92.5%). Nevertheless, in both cases the U.S. dollar was

the dominating foreign currency. A reason for this might be that this currency is

considered as very important in international trade.

A comparison between these facts leads me to the conclusion that private persons in

advanced countries trust their own currency, whereas private persons in emerging

market economies seem to trust foreign currencies. Otherwise the currency

composition between total debt and sovereign debt would not differ so much from

each other. Another interesting fact concerns which other currencies states prefer to

borrow in. They like advanced economies¿ currencies instead those of emerging

market countries.

Another important point concerning public debt structure is their composition

structure concerning maturity. It can be seen (Figure 4.2) that during 1988 the average

maturity of sovereign debt issued in both kinds of countries was little below 8 years.

But during the following 14 years the average maturity rate in emerging market

countries decreased to about 5 years while the maturity rate of advanced countries

sovereign debt increased to almost 10 years. This tendency towards short-term debt

can also be seen on Figure 4.1. It is interesting to note the fall in 1999 in both markets

(Figure 4.2) which was nevertheless stronger in emerging countries.[...]