State Debt: Bread for Today, Hunger Tomorrow

Several Central American governments have resorted to issuing public debt as a way to continue living beyond their means.

Monday, December 10, 2012

An article by Rafael Delgado Elvir in objectively analyzes the tendency of governments to fall in debt when faced with economic slowdowns. Excess liquidity worldwide makes it very easy to issue bonds of any kind and for states to obtain direct loans.

Delgado points out that “governments capable of spending efficiently know how contradictory it is to defend limits to fiscal deficits or state debt while millions of citizens are out of a job, and thousands of factories go under or trim staff. In the long run it is more harmful to continue with the recipe than the disease itself”.

Delgado’s analysis should also include the role played by international financial organizations, like the Interamerican Development Bank or the Central American Bank for Economic Integration, whose employees make a living by continuously offering loans, far too often not earmarked for productive activities.

More on this topic

Public Finances: What is Expected in 2021

October 2020

After the Alvarado administration agreed to backtrack on the proposal to negotiate a $1.75 billion loan with the IMF, it is predicted that next year the government will depend on domestic debt to finance its expenditures.

In mid-September, and in the context of a severe economic crisis that had been brewing before the pandemic, the Executive presented the plan with which it intended to mitigate the fiscal impact of the Covid-19 crisis, a proposal to negotiate an agreement with the International Monetary Fund (IMF) to obtain a $1.75 billion loan.

The State of Guatemala Could Issue Another $1.9 billion

November 2014

With the recent consent given by the Banguat for a new issuance of new debt totalling $1,917 million to finance the 2015 budget, the fiscal deficit could exceed 2.5% of GDP.

The private sector is not looking favorably on the approval given by the Monetary Board of the Bank of Guatemala for the possible issuance of $1.917 million in debt to finance part of the 2015 expenses, because the fiscal deficit would rise to levels above that considered acceptable in economic terms.

Sustainability of Public Debt in Central America

June 2013

The Central American Institute for Fiscal Studies has concluded that only the public debts of Panama and Nicaragua, using official data, are sustainable in the medium term.

The main theme of the fifth edition of the 'Lente Fiscal Centroamericano' (Central American Fiscal Lens) is an analysis of debt sustainability in Central America, which depends greatly on interest payments on debt, economic growth, inflation, revaluation and management of the fiscal deficit.

IMF Worries as Guatemala Issues More Debt

April 2010

The Government risks failing to comply with the current Stand-By Agreement with the International Monetary Fund, as its fiscal deficit would reach 3.9%.

However, Fernando Delgado, IMF representative for Guatemala, stated that “if the Government provides strong reasons for increasing the deficit, the Fund could maintain the Stand-By Agreement”.

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