Living with Debt: How to Limit the Risks of Sovereign Finance

The 2007 Report on Economic and Social Progress in Latin America analyzes the nature and evolution of sovereign debt in Latin America and discusses the policies that can be followed by countries and international financial institutions (IFIs) to reduce the vulnerabilities associated with it. Although this is not a time of debt crises or financial emergencies, the report is timely because policies implemented in tranquil times can help prevent future problems. There is currently a receptive attitude in international markets to new financial instruments, such as obligations denominated in domestic currencies, which opens up opportunities for improving the profile and risk characteristics of Latin American public debt. This report seeks to contribute, as well, to the debate regarding the current international financial architecture, and to discuss ideas and initiatives aimed at improving the management of key risks such as those associated with rollovers, currency denomination, commodity price volatility, and economic shocks.