Debt management and crisis in developing countries

Debt management policy for governments of developing countries must balance conflicting objectives. The structure of explicit and implicit government debt influences the amount of lending private creditors are willing to extend, contractual debt service costs, the probability of default and the costs of default. Because default is not relevant for governments of industrial countries, their debt management policies are not a useful guide for developing countries. The model developed suggests that minimizing debt service costs is likely to be a very inefficient policy for governments of developing countries because such a policy increases the cost of default. q 2000 Elsevier Science B.V. All rights