EXTERNAL DEBT RISK MANAGEMENT WITHIN THE SYSTEM OF MACROECONOMIC STABILITY

Abstract

The article examines key aspects of external debt risk management in the context of macroeconomic policy for developing countries.

It analyzes major risks such as refinancing, currency, interest rate, and liquidity risks arising from debt structure and market conditions. The study explores mitigation tools, including derivative hedging, liability management operations (exchanges, buybacks), reserve accumulation, and the development of domestic bond markets. Using the example of the Asian financial crisis of 1997-1998, it illustrates the consequences of excessive short-term foreign currency borrowing.

Strategies for an integrated national balance sheet, private sector regulation, and monitoring through stress tests are proposed. The conclusions emphasize the need for financing diversification and vulnerability minimization to ensure sustainable economic development.

This research delves into the complexities of managing external debt risks, critical for fiscal stability in emerging economies amid global financial integration. External debt, from foreign creditors like banks and multilateral institutions, funds deficits and projects but exposes countries to capital volatility, exchange fluctuations, and liquidity issues. Core risks include refinancing (rollover uncertainties leading to costs or access loss), currency (devaluation inflating obligations), interest rate (variable servicing costs), and liquidity (funding gaps).

Historical analysis, via the Asian crisis, shows how short-term foreign borrowing without hedging caused outflows and distress in Thailand and Indonesia, where private debt dominated. Quantitative methods like average time to maturity (ATM), value-at-risk (VaR), and simulations within sovereign asset-liability management (SALM) frameworks promote diversification.

Liability operations (LMOs) adjust profiles via exchanges, repurchases, swaps, and options; in crises, they enable restructuring with collective clauses. Private sector policies limit mismatches, require assets, and extend maturities. Domestic bond markets mitigate "original sin" through reforms and infrastructure.

Reserves follow Guidotti rule for coverage; alternatives like IMF lines add flexibility. Monitoring uses stress tests and statistics to avoid distortions.

Effective management needs holistic balance, transparency, and controls for resilient growth, preventing debt traps.