## _wp13266 - 1. Selected Episodes of Domestic or External Debt Default, Restructuring, or

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---

### I. Introduction
- Policymakers often believe advanced economies differ fundamentally from emerging markets in vulnerability and crisis management; historical evidence contradicts this belief.
- Historical record documents:
  - Numerous lesser-known domestic default episodes in advanced economies.
  - Widespread default by advanced and emerging European nations on World War I debts to the United States during the 1930s (debts were never repaid).
  - The scale of these defaults relative to debtor countries’ GDP and the collective magnitude from the U.S. creditor perspective.
- Key conclusions and warnings:
  - The depth of current debt overhangs typically implies sustained sub-par growth lasting two decades or more (see Reinhart, Reinhart, and Rogoff, 2012; World Economic Outlook, October 2012 and April 2013).
  - The endgame to the global financial crisis is likely to require some combination of:
    - financial repression,
    - outright restructuring of public and private debt,
    - conversions,
    - somewhat higher inflation,
    - and a variety of capital controls under macroprudential regulation.
  - Austerity alone is often not sufficient and may undermine credibility and expectations if relied upon exclusively.

### II. Financial liberalization, financial crises, and crisis prevention (Lesson 1)
- Lesson summary: Societies have historically done better at crisis management than at prevention; complacency tends to return as memories fade.
- Financial liberalization often precedes crises (reference: “Good-bye Financial Repression, Hello Financial Crash”).
- Composite crisis index (BCDI+):
  - BCDI index components: banking, currency, sovereign default (domestic and external), inflation; with stock market crashes added the BCDI+ index can range up to six per country per year.
  - Aggregate world maximum reading in principle: 396 crises (66 countries × 6).
  - The “financial repression” period, 1945–1979 in particular, shows markedly fewer crises than earlier or subsequently.
- Financial repression defined and implications:
  - Includes directed lending to government by captive domestic audiences, explicit or implicit caps on interest rates, regulation of cross-border capital movements, and tighter government-bank connections.
  - Acts as an opaque tax on savers and can mask a form of debt restructuring.
  - The boundary between prudential regulation and financial repression is not always sharp.
- Redistributive role of monetary policy:
  - Redistribution between savers and borrowers is a central policy channel; restriction of savers’ choices amplifies financial repression effects.

### III. Today’s multifaceted debt overhang (Lesson 2)
- Lesson summary: Diagnosing the scope and depth of debt requires accounting for public vs private, domestic vs external, and hidden debt.
- Central government debt:
  - Gross central government debt as a percentage of GDP for advanced and emerging market economies, 1900–2011 (unweighted average) shows:
    - Emerging markets deleveraged in the decade before the financial crisis.
    - Advanced economies reached a peak not seen since the end of World War II.
    - Current level of central government debt in advanced economies is approaching a two-century high-water mark (going back to 1800).
  - Broader measures (state and local liabilities, net debt adjustments) would make the public debt burden appear larger.
- External debt:
  - Gross total (public plus private) external debt as a percentage of GDP for 22 advanced and 25 Emerging Market Economies, 1970–2011 shows:
    - Dramatic increase in external debt for advanced countries; emerging markets show deleveraging.
    - External private debt (notably banks) is a form of “hidden debt.”
    - Intra-European debt growth was a major driver of advanced country external debt; common-currency area debt blurs national vs area-wide liabilities.
- Private sector debt:
  - Private domestic credit as a percentage of GDP, 1950–2011 (22 Advanced and 28 Emerging Market Economies) exhibits:
    - A marked upward trend over recent decades due to financial innovation and globalization.
    - Volatility from repression/liberalization cycles.
    - Post-crisis deleveraging of the private sector has been limited; governments increased borrowing to prop up the system, possibly lengthening the deleveraging process.
- Policy-relevant distinctions:
  - Domestic debt in domestic currency allows wider partial-default options (financial repression, stuffing debt into local pension/insurance funds, inflation) compared with foreign-currency external debt.
  - A mix of financial repression and inflation can be particularly potent in reducing domestic-currency debt (Reinhart and Sbrancia, 2011).

### IV. How will the debt be reduced? (Lesson 3)
- Lesson summary: Crisis resolution in advanced economies typically combines several instruments; it is not fundamentally different from emerging markets.
- Five principal ways to reduce large debt-to-GDP ratios (Box 1):
  1. Economic growth
  2. Fiscal adjustment-austerity
  3. Explicit (de jure) default or restructuring
  4. Inflation surprise
  5. A steady dose of financial repression accompanied by a steady dose of inflation
- Observations:
  - Most historical episodes involved combinations of these options.
  - The first option (growth) is relatively rare; the remaining options are difficult and unpopular.
  - Recent policy discussion has tended to forget options (3) and (5).
  - Option (5) was used extensively by advanced countries to deal with post–World War II debt (Reinhart and Sbrancia, 2011).
  - Option (3) was common enough before World War II.
  - Given the magnitude of today’s debt and the likelihood of a sustained period of sub-par average growth, fiscal austerity alone (even combined with financial repression) is doubtful to be sufficient; restructurings will be needed “far beyond anything discussed in public to this point.”
  - Mutualization of euro country debt reduces the need for restructuring but could slow growth or magnify sustainability problems in creditor countries.

### Box 1 — Elements of Debt Reduction: historical evidence and patterns
- Aggregate correlations and patterns:
  - Periods of high government debt have historically led to marked increases in debt restructurings.
  - Figure 5: GDP-weighted central government debt vs the percentage of countries experiencing inflation higher than 20 percent and the share of countries engaged in debt restructuring, 1826–2010.
  - Correlation between indebtedness and default at the aggregate level is “strongly statistically significant.”
  - Figure 6: waves of sovereign defaults and restructurings typically follow within a few years of an international wave of banking crises; this relationship is demonstrable.
- Documentation and measurement issues:
  - Domestic defaults, restructurings, or conversions are difficult to document and can be disguised as “voluntary.”
  - Financial repression and inflation can function as opaque mechanisms of partial default.
  - Magnitude of debt reduction from many credit events is difficult to document because of opacity and imprecision of recovery rate estimates; the problem is less severe for external defaults.
- Selected episodes in advanced economies (1920s–1960s) — representative country highlights:
  - Australia 1931–32: Domestic debt conversion agreement in 1931/32.
  - Austria 1920–22; 1932–33; 1934; 1938; 1940–52; 1945 (domestic default): Hyperinflation erodes domestic debt; Depression external default; World War I debt not repaid; external debt settled in 1952; domestic default with schilling restoration and blocked accounts.
  - Belgium 1934: World War I debt to the United States not repaid.
  - Canada (Alberta) April 1935: Only province to default—the default lasted for about 10 years.
  - France 1934: World War I debt to the United States not repaid.
  - Germany 1922–23; 1932–53; June 20, 1948: Hyperinflation liquidates domestic currency debt; largest Depression-time external default; monetary reform with limits and partial cancellations.
  - Greece 1932; 1932–64; 1934; 1941–44: Domestic interest reduced by 75 percent beginning in 1932; external arrears not resolved until 1964; World War I debt not repaid; hyperinflation eroded domestic debt.
  - Italy 1920; 1924; 1926; 1934; 1944; 1940–1946: Conversions of domestic debt in 1920s; World War I debt not repaid; inflation of 500 percent wipes out domestic debt; external debt in default.
  - Japan 1942–52; 1945–47; March 2, 1946–52: External debt in default; inflation of 150–600 percent wipes out domestic debt; post-inflation exchange and blocked accounts.
  - New Zealand 1933: Debt Conversion Act converting internal debt of 113 million pounds to 4% ordinary and 3% tax-free; dissenters faced a 33.3% interest tax.
  - Spain October 1936–April 1939: Interest payments on external debt suspended; arrears on domestic debt service.
  - United States 1933: Abrogation of the gold clause and a 40 percent reduction in the gold content of the U.S. dollar.
  - United Kingdom 1934: Most World War I debt consolidated into a 3.5 percent perpetual annuity; World War I debt to the United States defaulted after Hoover’s 1931 moratorium.

### Defaults on World War I debt to the United States (1930s): timing and magnitude
- Collective impact from U.S. creditor vantage:
  - Collective default on World War I debt owed by foreign countries amounted to 15–16 percent of U.S. GDP.
  - The United States itself “had already defaulted on its sovereign debt in April 1933 to domestic and external creditors alike.”
  - The abrogation of the gold clause with a subsequent 40 percent reduction in the gold content of the U.S. dollar (January 1934) “also amounted to a debt haircut amounting to about 16 percent of GDP.”
- Table 2 aggregates (values preserved as presented):
  - Finland: wartime/postwar total shown; Finland’s debt was 0.2 percent of Finnish GDP and was the only listed borrower to repay.
  - France: wartime debt 1,970,000,000.00; postwar debt 1,434,818,945.01; total 3,404,818,945.01 — debt-to-GDP reduction reported as 24.2 (percent).
  - Italy: wartime debt 1,031,000,000.00; postwar debt 617,034,050.90; total 1,648,034,050.90 — debt-to-GDP reduction reported as 19.1 (percent).
  - United Kingdom: wartime debt 3,696,000,000.00; postwar debt 581,000,000.00; total 4,277,000,000.00 — debt-to-GDP reduction reported as 22.2 (percent).
  - Belgium: wartime debt 171,780,000.00; postwar debt 207,307,200.43; total 379,087,200.43 — debt-to-GDP reduction reported as 3.3 (percent).
  - Greece: postwar debt 27,167,000.00 — debt-to-GDP reduction reported as 8.9 (percent).
  - Total (ex. arrears): 7,067,114,750.00 wartime; 3,272,906,475.56 postwar; total 10,340,021,225.56.
  - Total as a % of US GDP: 15.7.
  - Memorandum item: Total (including arrears) according to New York Times June 15, 1934: 11,628,311,614.94 as a % of US GDP 16.9.
- Qualitative points:
  - Of 17 countries listed as having borrowed from the United States during or right after World War I, only Finland repaid its debt.
  - Defaults on World War I debt to the United States were “near total”; estimates are conservative because they exclude interest on arrears.
  - Post–World War I default worldwide is understated if one does not consider war debts owed by countries to the United Kingdom, which for the most part were also defaulted on and never repaid.

### Financial repression and the sequencing of crises
- Prototype sequence after crises (extended from Reinhart and Rogoff, 2009):
  - Typical post-crisis sequence includes capital controls, financial repression, inflation, and default.
  - The turn from liberalization to heavier regulation stems from greater risk aversion after severe crises and desire to keep interest rates low to facilitate debt financing.
- Historical magnitudes from financial repression (Reinhart and Sbrancia, 2011; Reinhart, 2012):
  - Negative real interest rates reduced debt by “2 to 4 percent a year” for the United States and for the United Kingdom in years with negative real interest rates.
  - For Italy and Australia, with higher inflation rates, debt reduction from the financial repression “tax” was closer to “5 percent per year.”
  - Financial repression “is well under way in the current post-crisis experience.”

### Final thoughts and implications for policymakers
- Growth as a soft exit:
  - If economic growth returns, it could reduce or eliminate the need for painful restructuring, repression, or inflation.
  - Evidence on debt overhangs is not encouraging when looking at public debt alone.
- Empirical findings on debt overhangs:
  - Reinhart, Reinhart, and Rogoff (2012) consider 26 episodes in which advanced country debt exceeded 90 percent of GDP; these episodes encompass most or all since World War II.
  - They find that debt overhang episodes averaged 1.2 percent lower growth than individual country averages for non-overhang periods.
  - The average duration of the overhang episodes is 23 years.
- Policy implication summary:
  - Official public debt is only one piece of a larger debt overhang issue; governments should be cautious in assuming growth alone will end the crisis.
  - Today’s advanced country governments may need to consider approaches long associated with emerging markets and previously used by advanced countries themselves, including restructurings, financial repression, inflation, and partial defaults.

*IMF Working Paper content unit _wp13266 - 1. Selected Episodes of Domestic or External Debt Default, Restructuring, or*

### 1. Selected Episodes of Domestic or External Debt Default, Restructuring, or

### _wp13266 - 1. Selected Episodes of Domestic or External Debt Default, Restructuring, or

### I. Introduction
- Even after one of the most severe crises on record (in its fifth year as of 2012), policymakers maintain a belief that advanced economies are fundamentally different from emerging markets in vulnerability and crisis management.
- Historical record contradicts the notion that advanced countries do not resort to debt restructurings, higher inflation, capital controls, and financial repression; these have been integral to resolving significant debt overhangs in most advanced economies.
- Policymakers who rely on overly optimistic medium-term scenarios and avoid these instruments risk ultimately losing credibility and destabilizing expectations.
- The paper documents:
  - Lesser-known domestic default episodes in advanced economies.
  - Widespread default by both advanced and emerging European nations on World War I debts to the United States during the 1930s (debts were never repaid).
  - The scale of these defaults relative to debtor countries’ GDP and the collective magnitude from the U.S. creditor perspective.
- The depth of the current debt overhang typically implies sustained sub-par growth lasting two decades or more, as reviewed in Reinhart, Reinhart, and Rogoff, 2012, and World Economic Outlook, October 2012 and April 2013.
- Conclusion preview: The endgame to the global financial crisis is likely to require some combination of financial repression, outright restructuring of public and private debt, conversions, somewhat higher inflation, and a variety of capital controls under macroprudential regulation; austerity alone is often not sufficient.

*Key historical lesson highlighted: collective amnesia about advanced country deleveraging experiences (especially before World War II) has led to policies that may exacerbate deleveraging costs.*

### II. Financial liberalization, financial crises, and crisis prevention (Lesson 1)
- Lesson 1 summary: On prevention versus crisis management — societies have done better at crisis management than at prevention; complacency may return as memories fade.
- Financial liberalization frequently precedes crises ("Good-bye Financial Repression, Hello Financial Crash").
- Figure 1: A composite index (BCDI+ index) of banking, currency, sovereign default, inflation crises, and stock market crashes is presented for 1900–2010 (countries weighted by share of world income).
  - The BCDI index can take values between 0 and 5 for banking, currency, default (domestic and external), and inflation; with stock market crashes added the BCDI+ index can range up to six per country per year.
  - The aggregate world reading can, in principle, reach a maximum value of 396 crises (66 countries × 6).
  - The “financial repression” period, 1945–1979 in particular, shows markedly fewer crises than earlier or subsequently.
- Financial repression defined and implications:
  - Includes directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, regulation of cross-border capital movements, and tighter government-bank connections.
  - Financial repression can mask a subtle type of debt restructuring and act as an opaque tax on savers; it often correlates with reduced crisis frequency.
  - The boundary between prudential regulation and financial repression is not always sharp.
- Redistributive effects of monetary policy emphasize that redistribution between savers and borrowers is a central channel of policy, and restriction of savers’ choices amplifies financial repression effects.

### III. Today’s multifaceted debt overhang (Lesson 2)
- Lesson 2 summary: Diagnosing scope and depth of debt — public vs private, domestic vs external, and hidden debt make the problem much larger than superficial measures indicate.
- Central government debt:
  - Figure 2 shows gross central government debt as a percentage of GDP for advanced and emerging market economies, 1900–2011 (unweighted average).
  - Emerging markets deleveraged in the decade before the financial crisis; advanced economies reached a peak not seen since the end of World War II.
  - Current level of central government debt in advanced economies is approaching a two-century high-water mark (going back to 1800).
  - Broader measures (state and local liabilities, net debt adjustments) are not available long-run; including them would make the public debt burden seem larger.
- External debt:
  - Figure 3 shows gross total (public plus private) external debt as a percentage of GDP for 22 advanced and 25 Emerging Market Economies, 1970–2011.
  - Advanced countries experienced a dramatic increase in external debt; emerging markets show deleveraging.
  - Total external debt matters because public/private boundaries blur in crises; external private debt (notably banks) is a form of “hidden debt.”
  - Intra-European debt growth was a major driver of advanced country external debt; common-currency area debt blurs national vs area-wide liabilities.
- Private sector debt:
  - Figure 4 shows private domestic credit as a percentage of GDP, 1950–2011 (22 Advanced and 28 Emerging Market Economies).
  - Private sector debt exhibits a marked upward trend over recent decades due to financial innovation and globalization, punctuated by volatility from repression/liberalization cycles.
  - Post-crisis deleveraging of the private sector has been limited; governments have increased borrowing to prop up the system, possibly lengthening the deleveraging process.
- Distinctions and policy implications:
  - Domestic debt in domestic currency offers wider partial-default options (financial repression, stuffing debt into local pension/insurance funds, inflation) compared with foreign-currency external debt.
  - A mix of financial repression and inflation can be particularly potent in reducing domestic-currency debt (Reinhart and Sbrancia, 2011).

### IV. How will the debt be reduced? (Lesson 3)
- Lesson 3 summary: Crisis resolution in advanced economies is not fundamentally different from emerging markets; historical episodes typically combine several instruments.
- There are essentially five ways to reduce large debt-to-GDP ratios (Box 1). Most historical episodes involved combinations of these:
  1. Economic growth
  2. Fiscal adjustment-austerity
  3. Explicit (de jure) default or restructuring
  4. Inflation surprise
  5. A steady dose of financial repression accompanied by a steady dose of inflation

*Final observation: Austerity is often necessary but not sufficient; historical precedent shows that restructurings, inflation, financial repression, and capital controls have been used by advanced economies to resolve large debt overhangs.*

*Italic: IMF Working Paper content unit _wp13266 - 1. Selected Episodes of Domestic or External Debt Default, Restructuring, or*

### Box 1 The Eleents of Debt Reduction

### Box 1 The Eleents of Debt Reduction

### Elements and options for reducing sovereign debt
- Policy options listed (implied by context): fiscal austerity; financial repression; restructurings; mutualization of debt; inflation/default.  
- Observations:
  - “The first on the list is relatively rare and the rest are difficult and unpopular.”
  - Recent policy discussion has tended to forget options (3) and (5).
  - Option (5) was used extensively by advanced countries to deal with post–World War II debt (Reinhart and Sbrancia, 2011).
  - Option (3) was common enough before World War II.
  - Given the magnitude of today’s debt and the likelihood of a sustained period of sub-par average growth, fiscal austerity alone (even combined with financial repression) is doubtful to be sufficient; restructurings will be needed “far beyond anything discussed in public to this point.”
  - Mutualization of euro country debt uses northern country taxpayer resources to bail out the periphery and reduces the need for restructuring, but could result in continuing slow growth or even recession in core countries and magnify their own sustainability problems for debt and old-age benefit programs.

### Historical evidence and patterns of debt reduction, inflation, and defaults
- Aggregate-level correlations and patterns:
  - Periods of high government debt have historically led to marked increases in debt restructurings (illustrated by Figures 5 and 6).
  - Figure 5 plots GDP-weighted central government debt against the percentage of countries experiencing inflation higher than 20 percent and the share of countries engaged in debt restructuring, from 1826 through 2010.
  - The correlation between indebtedness and default at the aggregate level is “strongly statistically significant.”
  - Figure 6 shows waves of sovereign defaults and restructurings that typically follow within a few years of an international wave of banking crises; this relationship is statistically demonstrable and visible in individual country histories.
  - The debt restructurings in Figures 5 and 6 exclude numerous less-than-voluntary conversions and instances where the financial repression tax reduced debt burdens.

- On documentation and measurement:
  - Domestic defaults, restructurings, or conversions are particularly difficult to document and can be disguised as “voluntary.”
  - A broader definition of partial default could include financial repression and inflation as opaque mechanisms for reducing debt via restrictive regulations and taxes.
  - Magnitude of debt reduction from many credit events is difficult to document due to opacity, imprecision of recovery rate estimates, and lack of data; the problem is less severe for external defaults.

### Selected episodes in advanced economies (1920s–1960s)
- As Table 1 documents:
  - 13 of 21 advanced economies had at least one credit event involving the sovereign.
  - Many countries had multiple debt crises; an even larger number experienced wholesale private defaults during the 1930s (bank failures, nonfinancial corporate bankruptcies).
- Representative country episodes (dates and commentary preserved in structure):
  - Australia 1931–32: Domestic debt conversion agreement in 1931/32.
  - Austria 1920–22; 1932–33; 1934; 1938; 1940–52; 1945 (domestic default): Hyperinflation erodes domestic debt; Depression external default; World War I debt not repaid; external debt settled in 1952; domestic default with schilling restoration and blocked accounts.
  - Belgium 1934: World War I debt to the United States not repaid.
  - Canada (Alberta) April 1935: Only province to default—the default lasted for about 10 years.
  - France 1934: World War I debt to the United States not repaid.
  - Germany 1922–23; 1932–53; June 20, 1948: Hyperinflation liquidates domestic currency debt; largest Depression-time external default; monetary reform with limits and partial cancellations.
  - Greece 1932; 1932–64; 1934; 1941–44: Domestic interest reduced by 75 percent beginning in 1932; external arrears not resolved until 1964; World War I debt not repaid; hyperinflation eroded domestic debt.
  - Italy 1920; 1924; 1926; 1934; 1944; 1940–1946: Conversions of domestic debt in 1920s; World War I debt not repaid; inflation of 500 percent wipes out domestic debt; external debt in default.
  - Japan 1942–52; 1945–47; March 2, 1946–52: External debt in default; inflation of 150–600 percent wipes out domestic debt; post-inflation exchange and blocked accounts.
  - New Zealand 1933: New Zealand Debt Conversion Act converting internal debt of 113 million pounds to 4% ordinary and 3% tax-free; dissenters faced a 33.3% interest tax.
  - Spain October 1936–April 1939: Interest payments on external debt suspended; arrears on domestic debt service.
  - United States 1933: Abrogation of the gold clause and a 40 percent reduction in the gold content of the U.S. dollar.
  - United Kingdom 1934: Most World War I debt consolidated into a 3.5 percent perpetual annuity; World War I debt to the United States defaulted after Hoover’s 1931 moratorium.

### Defaults on World War I debt to the United States (1930s): timing and magnitude
- Collective impact from U.S. creditor vantage: the collective default on World War I debt owed by foreign countries amounted to 15–16 percent of U.S. GDP.
- The United States itself “had already defaulted on its sovereign debt in April 1933 to domestic and external creditors alike.”
  - The abrogation of the gold clause with a subsequent 40 percent reduction in the gold content of the U.S. dollar (January 1934) “also amounted to a debt haircut amounting to about 16 percent of GDP.”
- Table 2 highlights country-specific wartime, postwar, and total debt amounts and percentages of GDP where available; notable entries and magnitudes:
  - Finland: wartime/postwar total shown, Finland’s debt was 0.2 percent of Finnish GDP and was the only listed borrower to repay.
  - France: wartime debt 1,970,000,000.00; postwar debt 1,434,818,945.01; total 3,404,818,945.01 — debt-to-GDP reduction reported as 24.2 (percent).
  - Italy: wartime debt 1,031,000,000.00; postwar debt 617,034,050.90; total 1,648,034,050.90 — debt-to-GDP reduction reported as 19.1 (percent).
  - United Kingdom: wartime debt 3,696,000,000.00; postwar debt 581,000,000.00; total 4,277,000,000.00 — debt-to-GDP reduction reported as 22.2 (percent).
  - Belgium: wartime debt 171,780,000.00; postwar debt 207,307,200.43; total 379,087,200.43 — debt-to-GDP reduction reported as 3.3 (percent).
  - Greece: postwar debt 27,167,000.00 — debt-to-GDP reduction reported as 8.9 (percent).
  - Total (ex. arrears): 7,067,114,750.00 wartime; 3,272,906,475.56 postwar; total 10,340,021,225.56.
  - Total as a % of US GDP: 15.7.
  - Memorandum item: Total (including arrears) according to New York Times June 15, 1934: 11,628,311,614.94 as a % of US GDP 16.9.
- Qualitative points:
  - Of 17 countries listed as having borrowed from the United States during or right after World War I, only Finland repaid its debt.
  - The defaults on World War I debt to the United States were “near total” and these estimates are conservative, based on debt levels that do not include interest on arrears (so effective defaults were larger).
  - Post–World War I default worldwide is understated if one does not consider war debts owed by countries to the United Kingdom, which for the most part were also defaulted on and never repaid.

### Financial repression and the sequencing of crises
- Lesson: “On international financial architecture after global crises—the return of financial repression.”
- Prototype sequence (as extended from Reinhart and Rogoff, 2009):
  - Typical sequence after a financial crisis ends with some combination of capital controls, financial repression, inflation, and default.
  - The turn from liberalization to heavier regulation originates from greater aversion to risk after severe financial crises and a desire to keep interest rates low to facilitate debt financing.
- Historical magnitudes from financial repression:
  - Reinhart and Sbrancia (2011) document that following World War II financial repression via negative real interest rates reduced debt by “2 to 4 percent a year” for the United States and for the United Kingdom in years with negative real interest rates.
  - For Italy and Australia, with higher inflation rates, debt reduction from the financial repression “tax” was closer to “5 percent per year.”
  - Reinhart (2012) documents that financial repression “is well under way in the current post-crisis experience.”

### Final thoughts and implications for policymakers
- Growth as a soft exit:
  - If economic growth returns, it could reduce or eliminate the need for painful restructuring, repression, or inflation.
  - Evidence on debt overhangs is not encouraging when looking at public debt alone.
- Empirical findings on debt overhangs:
  - Reinhart, Reinhart, and Rogoff (2012) consider 26 episodes in which advanced country debt exceeded 90 percent of GDP; these episodes encompass most or all since World War II.
  - They find that debt overhang episodes averaged 1.2 percent lower growth than individual country averages for non-overhang periods.
  - The average duration of the overhang episodes is 23 years.
- Policy implication:
  - Given that official public debt is only one piece of the larger debt overhang issue, governments should be careful assuming growth alone will end the crisis.
  - Today’s advanced country governments may need to consider approaches long associated with emerging markets and previously used by advanced countries themselves (e.g., restructurings, financial repression, inflation, partial defaults).

*Source: Box 1 The Eleents of Debt Reduction (excerpt provided).*

### References

### _wp13266 - References

### Major categories represented
- Historical overviews and economic history
- Analyses of public debt, debt restructuring, and sovereign defaults
- Banking crises, financial crises, and macrofinancial links
- Datasets and national accounts sources
- Institutional reports and periodicals

### Selected references by theme (as listed in source)
- Bailey, Thomas A., 1950, “A Diplomatic History of the American People,” New York: Appleton-  Century-Crofts,  Inc.
- Barro, Robert, and Jose Ursua, 2009, “Stock-Market Crashes and Depressions,” NBER Working Paper No. 14760 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Brunnermeier, Markus K., and Yuliy Sannikov, 2012, “Redistributive Monetary Policy,” paper prepared for the Federal Reserve Bank of Kansas City’s Economic Policy Symposium, Jackson Hole, Wyoming (August 30–September 1).
- Diaz-Alejandro, Carlos, 1985, “Good-bye Financial Repression, Hello Financial Crash,” Journal of Development Economics, Vol. 19, No. 1-2, pp. 1–24.
- Dornbusch, Rudiger, and Mario Draghi, 1990, “Public Debt Management: Theory and History,” (Cambridge: Cambridge University Press).
- Francese, Maura, and Angelo Pace, 2008, “Il Debito Pubblico Italiano Dall’Unità a Oggi. Una Ricostruzione Della Serie Storica,” Banca d'Italia, Occasional paper No. 31, Roma.
- Frankel, Jeffrey A., and Jesse Schreger. 2013, "Over-optimistic Official Forecasts and Fiscal Rules in the Eurozone," Review of World Economics (published online, February 14).
- Historical National Accounts Database (HNAD), 1860-2001, http://www.rug.nl/research/ggdc/data/historical-national-accounts
- International Monetary Fund, 2012 and 2013, World Economic Outlook, IMF, Washington, D.C.
- Kaminsky, Graciela L., and Carmen M. Reinhart, 1999, “The Twin Crises: The Causes of Banking and Balance of Payments Problems,” American Economic Review, Vol. 89 (June), pp. 473-500.
- Kostelenos, George, and Socrates Petmezas et al. 2007, "Gross Domestic Product 1830-1939," Sources of Economic History of Modern Greece, Historical Archives of the National Bank of Greece.
- Laeven, Luc, and Fabian Valencia, 2010, “Resolution of Banking Crises: The Good, the Bad, and the Ugly,” IMF Working Paper 10/146. Forthcoming in Stijn Claessens, M. Ayhan Kose, Luc Laeven, and Fabián Valencia (eds.), Financial Crises: Causes, Consequences, and Policy Responses (Washington, D.C.: International Monetary Fund.)
- Lane, Philip, and Gian Maria Milesi-Ferretti, 2007, “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004,” Journal of International Economics, Vol. 73, pp. 223–50.
- League of Nations, various years, World Economic Survey: 1926–1944. All issues. (Geneva: League of Nations).
- Lindert, Peter H., and Peter J. Morton, 1989, “How Sovereign Debt Has Worked,” in Jeffrey Sachs (ed.), Developing Country Debt and Economic Performance, Vol. 1 (University of Chicago Press), pp. 39–106.
- Lloyd Prichard, Muriel, 1970, “An Economic History of New Zealand to 1939” (Auckland & London, Collins).
- MeasuringWorth, http://www.measuringworth.com/datasets/usgdp/result.php
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- Reinhart, Carmen M., and Kenneth S. Rogoff, 2009, “This Time Is Different: Eight Centuries of Financial Folly,” Princeton, New Jersey: Princeton University Press.
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*References list as provided in source PDF _wp13266 - References*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp13266.pdf_