Debt Accumulation in the Cis-7 Countries: Bad Luck, Bad Policies, or Bad Advice?

43 Pages Posted: 15 Feb 2006

See all articles by Thomas Helbling

Thomas Helbling

International Monetary Fund (IMF) - Middle East and Central Asia Department

Ashoka Mody

International Monetary Fund (IMF) - Research Department

Ratna Sahay

International Monetary Fund (IMF) - Developing Country Studies Division; National Bureau of Economic Research (NBER)

Date Written: May 2004

Abstract

Following the breakup of the Soviet Union in 1992, several low-income countries in the Commonwealth of Independent States (CIS) accumulated substantial external debt in a short time span, about half of which is owed to multilateral financial institutions. Three factors contributed to the current debt burden. First, the initial years of transition brought large systemic economic disruptions, loss of transfers from the center and collapse of trade relations among Council for Mutual Economic Assistance (CMEA) countries, and negative terms of trade shocks. Second, fiscal and other reforms, and consequently, growth revival, took longer than expected. Third, overoptimism by multilaterals contributed to the high debt levels. If external financial assistance, which was needed because of high social costs of the transition, had come in the form of grants in the first two or three years of the transition, the debt burden would have been lower and sustainable.

Keywords: Transition economies, growth, debt problems, structural reforms

JEL Classification: F34, F35, F43, H63, P24

Suggested Citation

Helbling, Thomas and Mody, Ashoka and Sahay, Ratna, Debt Accumulation in the Cis-7 Countries: Bad Luck, Bad Policies, or Bad Advice? (May 2004). IMF Working Paper No. 04/93, Available at SSRN: https://ssrn.com/abstract=878916

Thomas Helbling (Contact Author)

International Monetary Fund (IMF) - Middle East and Central Asia Department ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ashoka Mody

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-9617 (Phone)
202-589-9617 (Fax)

HOME PAGE: http://www.amody.com

Ratna Sahay

International Monetary Fund (IMF) - Developing Country Studies Division ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7181 (Phone)
202-623-7271 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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