IPD AI Insights

The Case for a New International Reform Effort

09/18/2008
Working Paper
Debt and Global Finance

One of the lessons of the emerging market crises of the late 1990s and the early years of the new century is that the global system can, and should, be better prepared to deal with undesired consequences of business cycle downswings and economic shocks, one of which can be a government debt crisis.

Despite the fact that several developing countries now have stronger economic fundamentals than they did in the 1990s, sovereign debt crises will return, as they have repeatedly done through hundreds of years of world history. The reasons for this are several, but the central one is that economic fluctuations are inherent features of financial markets, the boom and bust nature of which intensify under liberalized financial environments, such as those that all countries have increasingly adopted since the 1970s.