Debt Overhang in Emerging Europe?

This paper assesses the extent to which debt overhang poses a constraint to economic activity in Emerging Europe, as the region emerges from the recent financial and economic crisis. At the macroeconomic level, it finds that the external imbalance...

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Bibliographic Details
Main Authors:	Brown, Martin, Lane, Philip R.
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ADVANCED ECONOMIES ASSET POSITION ASSET PRICES BALANCE SHEET BALANCE SHEETS BANK ASSETS BANK BALANCE SHEETS BANK BONDS BANK CREDIT BANK DEBT BANK FINANCING BANK LENDING BANK LOAN BANK LOANS BANK PROFITABILITY BANKING CRISES BANKING CRISIS BANKING SECTOR BANKING SYSTEM BIASES BOND BOND ISSUANCE BORROWING BUSINESS CYCLES CAPITAL BASE CENTRAL BANK COMMODITY PRICES COMMON CURRENCY AREA CONCEPT OF DEBT CONSUMER CREDIT CORPORATE DEBT CORPORATE FINANCE CORPORATE INVESTMENT CREDIT ACCESS CREDIT AVAILABILITY CREDIT CARD CREDIT CARD DEBT CREDIT CARDS CREDIT LINE CREDITOR CREDITOR RIGHTS CREDITORS CURRENCY DEPRECIATION CURRENCY MISMATCH CURRENCY SHORTAGES CURRENT ACCOUNT CURRENT ACCOUNT DEFICITS DEBT DEBT BURDEN DEBT CRISES DEBT CRISIS DEBT DEFAULT DEBT FINANCING DEBT FORGIVENESS DEBT LEVEL DEBT LEVELS DEBT LIABILITIES DEBT LIABILITY DEBT OVERHANG DEBT PAYMENTS DEBT PROBLEM DEBT RATIO DEBT RATIOS DEBT RELIEF DEBT RESCHEDULING DEBT RESOLUTION DEBT RESTRUCTURING DEBTOR DEBTORS DEBTS DEFAULTS DEPOSIT DEPOSIT MONEY BANKS DEVELOPING COUNTRIES DEVELOPING COUNTRY DISTRIBUTION OF CREDIT DOMESTIC BANKING DOMESTIC BANKS DOMESTIC CREDIT DOMESTIC CURRENCY DOMESTIC MARKET DUMMY VARIABLE EARNINGS ECONOMIC ACTIVITY ECONOMIC CRISIS ECONOMIC GROWTH ECONOMIC POLICIES ECONOMIC POLICY EDUCATION LEVEL EMERGING ECONOMIES EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS ENTERPRISE CREDIT ENTERPRISE PERFORMANCE EQUITY CLAIM EQUITY FINANCING EQUITY FUNDING EQUITY RETURN EQUITY RETURNS EQUITY SHARE EXCHANGE RATE EXCHANGE RATES EXISTING CREDITORS EXISTING DEBT EXPORTER EXTERNAL DEBT EXTERNAL DEBTS EXTERNAL FINANCE EXTERNAL FUNDING FACE VALUE FAMILY BUSINESS FINANCIAL ASSETS FINANCIAL ASSISTANCE FINANCIAL CRISIS FINANCIAL DEVELOPMENT FINANCIAL HEALTH FINANCIAL LIABILITIES FINANCIAL MARKETS FINANCIAL PORTFOLIOS FINANCIAL STABILITY FINANCIAL STATEMENT FIRM PERFORMANCE FOREIGN BANKS FOREIGN CURRENCY FOREIGN CURRENCY LOAN FOREIGN CURRENCY LOANS FOREIGN DEBT FOREIGN EQUITY FOREIGN EXCHANGE FOREIGN EXCHANGE RESERVES FOREIGN INVESTORS GOVERNMENT DEBT GUARANTOR HIGH DEBT HOME IMPROVEMENT HOME MARKETS HOUSEHOLD DEBT HOUSEHOLD INCOME INCOME LEVEL INCOME SHOCKS INDEBTED INDEBTED HOUSEHOLDS INDEBTEDNESS INDIVIDUAL BANKS INDIVIDUAL CREDITORS INFORMATION ASYMMETRIES INSURANCE INTEREST RATE INTEREST RATE DIFFERENTIALS INTEREST RATES INTERNATIONAL BANK INTERNATIONAL BANKS INTERNATIONAL BOND INTERNATIONAL DEBT INTERNATIONAL DEBT SECURITIES INTERNATIONAL FINANCIAL INSTITUTIONS INVESTMENT ACTIVITY INVESTMENT BEHAVIOR INVESTMENT DECISIONS INVESTMENT LOAN INVESTMENT OPPORTUNITIES ISSUANCE LENDERS LENDING DECISIONS LEVEL OF DEBT LEVELS OF CREDIT LEVERAGE LIABILITY LIQUIDITY LIVING STANDARDS LOAN LOAN LOSSES LOAN PORTFOLIOS LOAN QUALITY LOANS FROM BANKS LOCAL CURRENCY LOCAL DEBT LONG-TERM COST LONG-TERM COSTS LOWER DEBT MATURITIES MONETARY FUND MORAL HAZARD MORTGAGE MORTGAGE CREDIT MORTGAGE DEBT MORTGAGE LOANS MORTGAGES MULTINATIONAL NEGATIVE SHOCK NEGATIVE SHOCKS NET DEBT NON-PERFORMING LOAN NON-PERFORMING LOANS NPL OUTPUT LOSSES OUTSTANDING STOCK OVERDRAFT OVERDRAFT FACILITY PAYOFF PENALTY PENSION POLICY RESPONSE PRIVATE CREDIT PRIVATE SAVING PRIVATE SECTOR CREDIT PRIVATE SECTOR LOANS PROPERTY RIGHTS PUBLIC DEBT PUBLIC DEBTS PUBLIC FUNDS REAL EXCHANGE RATE REMITTANCE REMITTANCES RENEGOTIATION REPAYMENT REPAYMENT DISCIPLINE REPAYMENTS RESERVE SAVINGS SELF-EMPLOYMENT SHARE OF ASSETS SHAREHOLDERS SOVEREIGN DEBT SOVEREIGN DEBTS STOCKS TAX TRADE BALANCE TRANSPARENCY URBAN AREA USE OF BANK CREDIT VALUE OF DEBT VULNERABLE HOUSEHOLDS WHOLESALE BANK
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20111011085806 http://hdl.handle.net/10986/3606

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Summary:	This paper assesses the extent to which debt overhang poses a constraint to economic activity in Emerging Europe, as the region emerges from the recent financial and economic crisis. At the macroeconomic level, it finds that the external imbalance problem for Emerging Europe has been in most cases more one of flows (high current account deficits in the pre-crisis years) rather than large stocks of external debt. A high reliance on equity funding means that net external debt is far lower than net external liabilities. Domestic balance sheets have expanded quite rapidly but sector liabilities remain relatively low compared with advanced economies. With the important exception of Hungary, public debt levels also remain relatively low in Emerging Europe. At the microeconomic level, the potential for debt overhang in the corporate sector is limited to a few countries: Latvia, Lithuania, Estonia, and Slovenia. Due to the low incidence of household debt, hardly any country, except Estonia, seems to face a threat of debt overhang in the household sector. The strong increase in non-performing loans compared with pre-crisis bank profitability suggests that debt overhang in the banking sector is a threat in Ukraine, Latvia, Lithuania, Hungary, Georgia, and Albania. Financial integration of Emerging Europe seems to have contributed to the transmission of the crisis to the region. At the same time, this integration is helping the region in managing the crisis by concerted actions of the major players.

Debt Overhang in Emerging Europe?

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