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Public Debt, Contingent Liabilities and Debt 'Tolerance': The Case of Colombia

Clavijo Vergara analyses the dynamics of Colombia’s public and external debt over the period 1997-2003. He argues that a proper assessment of debt sustainability requires that the cost of serving the debt is computed on a gross basis (i.e. including the interest payments on intra-governmental debt) and that contingent liabilities, like pension obligations and public guarantees, are taken into account. He remarks that, in spite of the pressure from both international organisations and market players, these two conditions are not usually met. He finds this particularly worrisome in the light of recent evidence which shows that recognition of contingent liabilities in emerging markets, along with interest rates and exchange rate developments, accounts for the bulk of public debt deterioration.