Indian Council for Research on International Economic Relations

Lecture Details

High Debt Emerging Market Macroeconomics: Turkey, Brazil and other experiences

November 11, 2005

ICRIER organized a lecture by Kemal Dervi?, Administrator, UNDP and UN Under Secretary General on November 11, 2005. The lecture was organized jointly with NCAER and the UNDP at ASSOCHAM. 

Dr. Dervi? started as the new head of the UNDP in August 2005. Prior to this he was a member of the Turkish Parliament and has also served as Minister, Economic Affairs and the Treasury, Republic of Turkey. He has played a significant role towards Turkey’s recovery programme after the devastating financial crisis that hit the country in February 2001. 

Dr. Dervi? in his lecture discussed the problems faced by high debt economies and how the situation led to the crises of emerging market economies such as Brazil, Turkey, Argentina and Mexico. He pointed out that the average debt to GDP ratio in these economies has been very high — at around 70%, which is unsustainable leading to financial crises. 

In case of Turkey he explained that to overcome the crisis they created a primary surplus by adopting a tight fiscal policy which led to a reduction in social expenditure like education, health etc. He therefore proposed a stability and growth facility programme to address volatility and high debt problems in emerging market economies that would help in achieving social stability and eventually reducing public debt. 

Sharing his views on India, he said that although India has a very high debt to GDP ratio at 81% in 2002, the situation is however very different from high debt economies. He pointed out that the growth rate of high debt economies was significantly lower than real interest rates whereas in the case of India the real GDP growth rate exceeds the real interest rates. This leads the growth dynamics to work more favourably in the case of India. Therefore India’s case is fortunately different, with a low inflation rate, high foreign exchange reserves, capital controls and low exchange rates volatility. Moreover there has not been any debt crisis in India. The other important point vis-à-vis India is that the major part of the public debt is contributed by the internal debt of the public sector making it less vulnerable. 

Having said that, he cautioned that though the situation in India does not seem likely to face a debt event, however, if the debt ratio is allowed to creep up; it could lead to a significant negative impact on growth and investment that could be a drag on the economic activity. He also suggested reduction in fiscal deficit to better manage the debt situation in the country. 

The lecture was very well attended by a number of eminent persons from academia, policy makers, media and various research institutes. Dr. Kirit Parikh, Member, Planning Commission chaired the lecture.


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