Working Paper: NBER ID: w2455
Authors: Jeffrey Sachs; Harry Huizinga
Abstract: The major theme of this paper is that the commercial banks have weathered the debt crisis, while many debtor countries remain in economic paralysis or worse. There is a growing consensus that much of the LDC debt will not be fully serviced in the future, and that consensus is reflected in at least two ways: in the discounts observed in the secondary market prices for LDC debt, and in the discounts in the stock market pricing of banks with exposure in the LDCs.
Keywords: commercial banks; developing countries; debt crisis; LDCs
JEL Codes: F34; G21; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| debt crisis (F34) | economic paralysis in debtor countries (F65) |
| high bank exposure (G21) | potential financial instability (F65) |
| regulatory laxness (K20) | negative long-term economic outcomes for banks (F65) |
| market's perception of risk (G10) | negative long-term economic outcomes for banks (F65) |
| growing pessimism over LDC claims (F34) | decline in stock market prices (G10) |
| regulatory actions (G18) | slower recovery of bank capital (F65) |