The potential risks associated with high public debt have long been a concern of economic policymakers around the globe. In the industrial countries, the need to strengthen fiscal positions and reduce public debt to accommodate the pressures that population aging will put on government budgets in the future has received considerable attention in recent years (see, for example, the May 2001 World Economic Outlook; Economic Policy Committee, 2001; and Turner and others, 1998). For emerging market economies, high public debt has often had more immediate consequences for economic performance, with debt crises―and the resulting painful periods of economic adjustment―having been a recurring feature of the histories of many of these countries. Following a period of relative calm in the first half of the 1990s, during which public debt in many countries declined, recent developments have once again brought to the fore the issue of public debt in emerging market economies. Public debt has increased quite sharply in recent years across a broad range of emerging market economies; there have been high profile and costly debt defaults or distressed debt restructurings in Argentina, Ecuador, Pakistan, Russia, Ukraine, and Uruguay; and other countries―Turkey, for example―have experienced severe fiscal difficulties. These developments have led to the suggestion that―despite the currently benign environment in global financial markets―emerging market economies may once again be on the verge of serious public debt problems.
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