Bernardo Guimaraes, 08 October 2007

Emerging nation debts are desirable for moving capital from richer to poorer countries, where it is relatively scarce. However, debt crises in emerging nations have negative effects on the global financial system. New research suggests that if emerging economies’ debt payments were negatively related to the world real interest rates prevailing on the maturity of their debt contracts, the risk of default and its volatility would be significantly reduced. A switch to such debt contracts would decrease the incidence of sovereign debt crises.

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