FOREIGN DEBT ACCUMULATION - FINANCIAL AND FISCAL EFFECTS AND MONETARY-POLICY REACTIONS IN DEVELOPING-COUNTRIES

This paper analyzes the effects on the current account of government a nd government-guaranteed foreign debt, on the one hand, and net foreig n liabilities or the cumulated current account deficit, on the other h and, in a sample of 26 developing countries. While the cumulated curre nt account deficit generates stabilizing forces, possibly through fina ncial and wealth effects, large amounts of government and government-g uaranteed debt produce destabilizing effects by stimulating capital fl ight. I also find that monetary policy reactions are stabilizing in th e case of the cumulated current account deficit, but destabilizing in the case of a build-up of government and government-guaranteed foreign debt.