Even after one of the most severe multi-year crises on record in the advanced
economies, the received wisdom in policy circles clings to the notion that high-income
countries are completely different from their emerging market counterparts. The current
phase of the official policy approach is predicated on the assumption that debt sustainability
can be achieved through a mix of austerity, forbearance and growth. The claim is that
advanced countries do not need to resort to the standard toolkit of emerging markets,
including debt restructurings and conversions, higher inflation, capital controls and other
forms of financial repression. As we document, this claim is at odds with the historical track
record of most advanced economies, where debt restructuring or conversions, financial
repression, and a tolerance for higher inflation, or a combination of these were an integral
part of the resolution of significant past debt overhangs.
Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten by Debt Free on Scribd
