## 10. Key External Indicators under Different Scenarios, 2012–17

## Source details

**Canonical URL:** [10. Key External Indicators under Different Scenarios, 2012–17](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1327.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1327.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1327.pdf.json)

---

### Introduction and purpose
- Studies the link between global variables (commodity prices, world growth, financial market conditions) and domestic variables (GDP growth, trade balance, real exchange rate, sovereign spreads) that drive public and external debt dynamics.
- Develops an integrated framework combining:
  - Econometric estimates of the effect of exogenous external variables on key domestic variables.
  - The IMF‘s standard framework for debt-sustainability analysis (DSA).
- Objective: examine evolution of public and external debt sustainability indicators under alternative global scenarios and assess adequacy of current buffers for eleven Latin American countries (all South American economies except Guyana and Suriname, plus Mexico), representing about 95 percent of the region‘s GDP.

### Major stylized facts (2002–12)
- Regional macro improvements over 2003–08:
  - Public debt and external debt stocks declined; public and foreign assets accumulated.
  - Flows improved: primary fiscal and current account balances strengthened.
  - Less vulnerable debt structures: reduced share denominated in foreign currency and extended maturity.
- Drivers of public debt reduction, 2003–08:
  - On average, public debt-to-GDP ratios fell by about 30 percentage points of GDP for Latin America.
  - Decline driven primarily by rapid real GDP growth and sizeable primary surpluses; negative real interest rates contributed in some countries.
  - Real exchange rate appreciation contributed only marginally to debt reduction.
- Heterogeneity across countries:
  - LA7 (Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay): drop of about 20 percentage points of GDP in public debt ratios driven by primary surpluses and rapid real GDP growth.
  - Other LA countries (Argentina, Bolivia, Ecuador, Venezuela): larger average fall in indebtedness (about 45 percentage points of GDP) driven mostly by output effects and negative real interest rates; real public expenditure grew rapidly.
- Post-Lehman (2009–12):
  - Regional public debt ratios remained broadly stable on average, at around 35 percent of GDP.
  - LA7: fiscal stimulus in 2009-10 then consolidation; modest resumption of declining debt ratios in many LA7 countries.
  - Other LA countries: sustained deterioration in primary balances since 2009, turning surpluses into deficits and pushing debt ratios upwards (Bolivia an exception).
- External debt and assets, 2003–08:
  - External debt-to-GDP ratios declined by more than 30 percentage points of GDP on average; cumulative foreign asset accumulation reached nearly 70 percent of GDP.
  - LA7: external debt declined by 25 percent of GDP driven by real appreciation and non-debt flows (FDI).
  - Other LA countries: external indebtedness fell by about 50 percentage points of GDP, mainly via large current account surpluses and real exchange rate appreciation.
- Post-Lehman external trends:
  - Downward trend halted in 2009; debt ratios about 28–30 percent of GDP for both groups by 2009–12.

### Methodological approach
- Integrated framework:
  - Maps shocks to global variables into domestic variables via country-specific VARs.
  - Feeds conditional forecasts of domestic variables into IMF DSA-style accounting decomposition of public and external debt dynamics.
- Key domestic variables governing debt dynamics:
  - Public debt driven by: effective average interest rate, real GDP growth, nominal depreciation/real exchange rate movements (valuation on foreign currency debt), and the primary balance (decomposed into commodity revenues, non-commodity revenues, and expenditure).
  - External debt driven by: average interest rate on external debt, real GDP growth, real exchange rate valuation effects, non-interest current account balance (proxied by trade balance), and non-debt creating flows (FDI, portfolio equity).
- VAR specification:
  - Country-specific reduced-form VARs estimated quarterly from 1990:Q1 through 2012:Q1.
  - Endogenous vector: real GDP growth, change in trade balance in percent of GDP (dTBt), and log difference of the real effective exchange rate.
  - Exogenous global variables (z): global real GDP growth, VIX, log differences of agriculture, energy, and metals prices, 10-year U.S. Treasury rate, primary balance (pb), and debt-to-GDP ratio (dp).
  - Lags: up to four lags in B(L) and H(L).
  - Primary balance treated as exogenous for estimation; revenue components forecast based on conditional output forecasts and commodity-price-driven commodity revenues; expenditure responses considered under alternative rules (neutral and countercyclical).
- Sovereign spreads module:
  - Spread equation estimated separately (post-1998 data availability).
  - Candidate fundamentals: public debt level, international reserves, real exchange rate; VIX statistically significant and robust.
  - Estimation methods considered: OLS (without constant), panel fixed effects, panel random effects; final specification chosen based on out-of-sample forecasting accuracy for 2008:M6–2012:M12.

### Scenarios for global exogenous variables
- Baseline: IMF World Economic Outlook projections.
- Four adverse scenarios:
  - Scenario 1 — Temporary Financial Shock:
    - A spike of the VIX in 2013 of similar magnitude to the Lehman event; VIX returns to baseline in 2014.
    - Real variables (global growth and commodity prices) remain at baseline.
  - Scenario 2 — Temporary Real Shock:
    - Temporary global recession with lower growth and commodity prices during 2013–14; return to baseline thereafter.
  - Scenario 3 — Protracted Global Slowdown:
    - Relatively high uncertainty (VIX at current elevated levels), lower commodity prices and lower global growth relative to baseline, with protracted weakness.
  - Scenario 4 — Tail Event:
    - Extreme Lehman-like event in 2013–14 with magnitudes similar to 2008–09 across VIX, global GDP growth, and commodity prices; assumes protracted adverse effects through 2014–17.
- Table 1 and Figure 6 (source) specify detailed paths and numerical adjustments under each scenario.

### Key modeling assumptions and fiscal rules
- Three features determine fiscal responses studied: (i) the output elasticity of non-commodity fiscal revenue; (ii) real public expenditure policy; and (iii) the extent of reserve accumulation.
- Non-commodity revenues assumed to vary with nominal GDP, with elasticity equal to one.
- Three expenditure rules analyzed:
  - Baseline fiscal policies: real expenditure growth behaves as in the baseline projection regardless of the scenario.
  - Neutral fiscal policy: expenditure grows at potential GDP growth rates under each scenario (allowing only automatic stabilizers to operate). Exception: where IMF baseline projections for 2013-14 assume expenditure growth above potential, expenditure growth equals the baseline projections.
  - Counter-cyclical fiscal policy: expenditure grows above potential GDP growth rate by a margin proportional (one-to-one) to the gap between actual GDP growth and potential GDP growth.
- Exploring these rules assesses whether fiscal buffers are large enough to: (i) deploy countercyclical fiscal policy, (ii) allow automatic stabilizers to operate, or (iii) require fiscal tightening.

### Main results — aggregates and mechanisms
- Under the WEO Baseline projections:
  - Public and external debt ratios are, on average, expected to decline only slightly (less than 2 percentage points of GDP) through 2017.
  - Commodity-related revenues will continue to push public debt down, mostly offset by continuation of non-commodity primary deficits.
  - External debt dynamics driven by large non-debt-creating capital inflows (FDI and equity portfolio flows) and further foreign asset accumulation.
- Under baseline policies and temporary shocks (scenarios 1 and 2):
  - Scenario 1: Temporary financial shock would lead to an increase of public debt of about 7 percentage points of GDP by 2017 (relative to the baseline).
  - Scenario 2: Temporary real shock would have a much more muted impact on public debt.
  - Transitory shocks would not have visible effects on external debt dynamics.
- Under baseline policies and persistent shocks (scenarios 3 and 4):
  - Scenario 4: would increase public debt, on average, by 20 percentage points of GDP (to around 55 percent) by 2017.
  - External debt would increase only 5-6 percentage points of GDP by 2017 under these scenarios.

### Main results — active (neutral and countercyclical) policies
- If authorities respond to scenarios 1 and 2 with neutral or countercyclical policies:
  - Public debt levels by 2017 would reach about 46-51 percent and 41-44 percent of GDP, respectively.
  - Primary balances would deteriorate only marginally; external debt paths would not be significantly affected.
- Scenario 3:
  - Debt trajectory under countercyclical policy would be very similar to neutral policy because potential GDP growth would also decline.
  - Mistaking new lower potential for old potential could make neutral policy stimulative, worsening primary balance and public debt dynamics.
- Scenario 4:
  - Neutral policy and countercyclical policy would lead to increases in public debt—more than 20 and 30 percentage points of GDP by 2017, relative to the baseline, respectively.
  - Under countercyclical policies public debt could reach about 65 percent of GDP.

### Country-specific results and country groupings
- Aggregate assessment:
  - On average, current fiscal positions in the region are adequate to deal with temporary and moderate protracted external shocks.
  - Fiscal space to face more severe protracted shocks could be limited.
  - External sustainability does not appear to be a general source of concern for Latin America.
- Country groups:
  - Group (i) — High vulnerability: Argentina and Venezuela
    - Would face considerable fiscal sustainability issues under large shocks.
  - Group (ii) — Moderate vulnerability: Brazil, Ecuador, Mexico, Uruguay
    - Could manage moderate shocks but would benefit from building additional buffers.
  - Group (iii) — Relatively solid: Bolivia, Chile, Paraguay, Peru, and to a lesser extent Colombia
    - Relatively well placed to withstand sizeable shocks and could respond with expansionary policies without putting fiscal solvency at risk.
- Selected country projections under baseline external conditions:
  - Venezuela: debt projected to increase by 30 percentage points of GDP, reaching 80 percent of GDP, by 2017.
  - Brazil and Uruguay: largest decreases in public debt among countries listed.
  - Colombia: debt levels could reach over 50 percent of GDP and primary balance gap -4 percent of GDP under severe scenarios (figures stated in source).

### External sustainability
- Even under severe scenarios (3 and 4) countries in the region would generally maintain external sustainability: debt levels would remain moderate and current account balance gaps would be closed or positive.
- Current accounts tend to improve after large negative external shocks, especially financial ones.
- Exception: Venezuela, where external sustainability concerns could be raised in case of a tail event.

### Analytical features, limitations, and caveats
- Methodological contributions:
  - Links external variables to domestic variables to feed standard public and external DSA, enabling scenario-based assessments that capture correlated shocks and joint dynamic responses.
- Caveats:
  - Focuses on general government gross debt (consistent with WEO reporting); gross rather than net debt choice may understate buffer relevance where public asset accumulation is sizeable.
  - Does not estimate an explicit fiscal reaction function; primary balance projections use forecasted revenues and specified expenditure responses.
  - Assumes international inflation and pass-through linking nominal and real exchange rate movements one-to-one.
  - Scenarios are external/global in nature; country-specific adverse scenarios are not considered.
  - Leaves aside potential changes in currency or maturity composition of public and external debt following a shock.

### Annex and estimation highlights
- VAR estimation:
  - Country-specific reduced-form VARs estimated quarterly from 1990:Q1 through 2012:Q1 (end sample).
  - Example VAR fit statistics printed in Table A1 include r2_3 entries such as 0.468, 0.337, 0.519, 0.447, 0.267, 0.564 (as printed).
  - Aic values printed include: 12.3, 10.5, 10.6, 9.6, 12.7 (as printed).
- Sovereign spreads OLS (Table A2) — selected coefficients and statistics:
  - Observations: 2,990.
  - R-squared: 0.148, 0.147, 0.147, 0.147, 0.145, 0.147, 0.145 (columns (1)–(7) as printed).
  - Key coefficients (exact printed values):
    - L.dpd: 18.846*, 18.623*, 18.721*, 18.737*, 19.655**, 11.780, 14.275 (standard errors printed in table).
    - L.dfxresy: -8.522***, -8.633***, -8.625***, -8.807***, -9.024*** (standard errors printed).
    - dlnreer: -6.596**, -6.592**, -6.591**, -6.587**, -6.620**, -6.677**, -6.691** (standard errors printed).
    - dvix: 5.187**, 5.108**, 5.111**, 5.159**, 4.867**, 5.165**, 4.866** (standard errors printed).
  - Interaction terms and other coefficients reported with significance levels (see Table A2 in source for full matrix).
- Annex figures provide country-level decompositions and scenario fan charts for 2003–17 and 2012–15 including specific numeric panel headings such as:
  - Argentina: 32.2, 34.9; Bolivia: 20.7, 21.3; Brazil: 13.5, 15.6; Chile: 56.5, 39.2, 33.7; Colombia: 40.1, 22.6, 19.7; Mexico: 23.2, 28.0, 25.9; Peru: 48.2, 25.3, 22.3; Uruguay: 40.4, 33.4; Venezuela: 48.5, 42.0, 46.2 (values printed in country panels).
- Annex chart numeric ticks and labels are preserved in figures (examples include: 66.2; 35.1; LatinAmerica (average) — 165.0; Argentina — 69.1; Ecuador — 107.2; Uruguay — 46.5; top-left external debt panel sequence: 61.9, 28.5; and numerous axis ticks such as -140 through 185 depending on panel).

### Conclusions and policy implications
- Latin America experienced a sharp improvement in macroeconomic fundamentals over the last decade, partly due to a highly favorable external environment.
- With prospects of less favorable conditions, fundamentals may change drastically under adverse scenarios.
- Main findings:
  - External sustainability does not appear to be a general source of concern for Latin America.
  - Fiscal space to deal with a protracted deterioration of the external environment may be limited in several countries.
- Policy implication:
  - The region would benefit from further strengthening buffers, while favorable conditions last, to be in a position to actively use fiscal policy should the external environment deteriorate markedly.
- Country differentiation reiterated:
  - (i) Argentina and Venezuela: tight constraints likely precluding countercyclical policy even for moderate shocks.
  - (ii) Brazil, Mexico, Uruguay, (and Ecuador to a lesser extent): some space to run countercyclical policy but would benefit from building further space.
  - (iii) Bolivia, Chile, Paraguay, Peru, (and Colombia to a lesser extent): appear positioned to weather sizeable shocks with countercyclical policies without compromising debt sustainability.

*Source: IMF working paper chapter "10. Key External Indicators under Different Scenarios, 2012–17" (content as provided).*

### References .............................................................................................................

### _wp1327 - References

### References
- References ................................................................................................................................30

### Annexes
- Annexes....................................................................................................................................32

### Tables
- 1. Key Global Assumptions under Alternative Scenarios .......................................................18
- 2. Key Domestic Policy Assumptions under Alternative Scenarios ........................................20

### Figures
- 1.  Latin America: Fey Fiscal Indicators, 2002–12 ....................................................................4
- 2.  Latin America. Key External Indicators, 2002–12 ...............................................................4
- 3.  Factors Driving Public Debt Dynamics, 2003–12 ................................................................9
- 4.  Components of Primary Balance Dynamics, 1995–2012 .....................................................9
- 5.  Factors Driving External Debt Dynamics, 2003–12 ...........................................................10
- 6.  Global Variables under Alternative Scenarios, 2003–17 ....................................................18
- 7.  Latin America. Factors Driving Public and External Debt Dynamics under  
     Alternative Global Scenarios, 2003–17 ..............................................................................23
- 8.  Latin America. Public and External Debt under Alternative Scenarios  
     and Policies, 2012–17 .........................................................................................................24
- 9.  Key Fiscal Indicators under Different Scenarios, 2012–17 ................................................27

*Source: _wp1327 - References*

### 10. Key External Indicators under Different Scenarios, 2012–17 ...........................................28

### 10. Key External Indicators under Different Scenarios, 2012–17

### Introduction and purpose
- Studies the link between global variables (commodity prices, world growth, financial market conditions) and domestic variables (GDP growth, trade balance, real exchange rate, sovereign spreads) that drive public and external debt dynamics.
- Develops an integrated framework combining:
  - Econometric estimates of the effect of exogenous external variables on key domestic variables.
  - The IMF‘s standard framework for debt-sustainability analysis (DSA).
- Objective: examine evolution of public and external debt sustainability indicators under alternative global scenarios and assess adequacy of current buffers for eleven Latin American countries (all South American economies except Guyana and Suriname, plus Mexico), representing about 95 percent of the region‘s GDP.
- Distinction from prior work: explicitly links specific external shocks to both public and external debt dynamics and covers a broader set of countries than much of the literature.

### Major stylized facts (2002–12)
- Regional macro improvements over 2003–08:
  - Public debt and external debt stocks declined; public and foreign assets accumulated.
  - Flows improved: primary fiscal and current account balances strengthened.
  - Less vulnerable debt structures: reduced share denominated in foreign currency and extended maturity.
- Drivers of public debt reduction, 2003–08:
  - On average, public debt-to-GDP ratios fell by about 30 percentage points of GDP for Latin America.
  - Decline driven primarily by rapid real GDP growth and sizeable primary surpluses; negative real interest rates contributed in some countries.
  - Real exchange rate appreciation contributed only marginally to debt reduction.
- Heterogeneity across countries:
  - LA7 (Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay): drop of about 20 percentage points of GDP in public debt ratios driven by primary surpluses and rapid real GDP growth; Chile, Colombia, Paraguay, and Peru displayed particularly restrained expenditure policies.
  - Other LA countries (Argentina, Bolivia, Ecuador, Venezuela): larger average fall in indebtedness (about 45 percentage points of GDP) driven mostly by output effects and negative real interest rates; savings of booming revenues were limited as real public expenditure grew rapidly.
- Post-Lehman (2009–12):
  - Regional public debt ratios remained broadly stable on average, at around 35 percent of GDP, due to no further contributions from primary balances.
  - LA7: implemented fiscal stimulus in 2009-10 then consolidated; modest resumption of declining debt ratios in many LA7 countries.
  - Other LA countries: sustained deterioration in primary balances since 2009, turning surpluses into deficits and pushing debt ratios upwards (Bolivia an exception).
- External debt and asset accumulation, 2003–08:
  - External debt-to-GDP ratios declined by more than 30 percentage points of GDP on average; cumulative accumulation of foreign assets reached nearly 70 percent of GDP.
  - LA7: external debt declined by 25 percent of GDP driven by real appreciation and non-debt flows (FDI) with moderate current account surpluses.
  - Other LA countries (heavy commodity exporters): external indebtedness fell by about 50 percentage points of GDP, mainly via large current account surpluses and real exchange rate appreciation; role of non-debt flows limited.
- Post-Lehman external trends:
  - Downward trend halted in 2009; debt ratios about 28–30 percent of GDP for both groups by 2009–12.

### Methodological approach
- Integrated framework overview:
  - Maps shocks to global variables into domestic variables via country-specific VARs.
  - Feeds conditional forecasts of domestic variables into IMF DSA-style accounting decomposition of public and external debt dynamics.
- Key domestic variables that ultimately govern debt dynamics:
  - Public debt driven by four endogenous domestic variables: effective average interest rate (capturing spreads and risk-free rates), real GDP growth, nominal depreciation/real exchange rate movements (valuation on foreign currency debt), and the primary balance (decomposed into commodity revenues, non-commodity revenues, and expenditure).
  - External debt driven by five domestic variables: average interest rate on external debt, real GDP growth, real exchange rate valuation effects, non-interest current account balance (proxied by trade balance), and non-debt creating flows (FDI, portfolio equity).
- VAR specification:
  - Country-specific reduced-form VARs estimated quarterly from 1990:Q1 through 2012:Q1.
  - Endogenous vector includes: real GDP growth, change in trade balance in percent of GDP (dTBt), and log difference of the real effective exchange rate.
  - Exogenous global variables (z) include: global real GDP growth, VIX, log differences of agriculture, energy, and metals prices, 10-year U.S. Treasury rate, primary balance (pb), and debt-to-GDP ratio (dp).
  - Lags: up to four lags in B(L) and H(L).
  - Primary balance treated as exogenous for estimation; for projections revenue components are forecast based on conditional output forecasts and commodity-price-driven commodity revenues; expenditure responses considered under alternative rules (neutral and countercyclical).
  - Specification and selection prioritized conditional out-of-sample forecasting performance during the Lehman event.
- Sovereign spreads module:
  - Spread equation estimated separately due to limited data availability (post-1998 series).
  - Candidate fundamentals: public debt level, international reserves, real exchange rate; VIX found statistically significant and robust among exogenous variables.
  - Estimation methods considered: OLS (without constant), panel fixed effects, panel random effects; final specification chosen based on out-of-sample forecasting accuracy for 2008:M6–2012:M12.

### Scenarios for global exogenous variables
- Baseline: IMF World Economic Outlook projections.
- Four adverse scenarios (exogenously determined paths for global variables: global growth, VIX, 10-year U.S. T-bill rate, commodity prices for food, energy, metals; assumptions on non-debt flows and reserve accumulation also specified):
  - Scenario 1 — Temporary Financial Shock:
    - A spike of the VIX in 2013 of similar magnitude to the Lehman event; VIX returns to baseline in 2014.
    - Real variables (global growth and commodity prices) remain at baseline.
  - Scenario 2 — Temporary Real Shock:
    - Temporary global recession with lower growth and commodity prices during 2013–14; return to baseline thereafter.
    - Characterizes elevated global uncertainty causing a slowdown that is eventually resolved.
  - Scenario 3 — Protracted Global Slowdown:
    - Relatively high uncertainty (VIX at current elevated levels), lower commodity prices and lower global growth relative to baseline, with protracted weakness (does not assume abrupt changes).
  - Scenario 4 — Tail Event:
    - Extreme Lehman-like event in 2013–14 with magnitudes similar to 2008–09 across VIX, global GDP growth, and commodity prices; unlike 2008–09 assumes more protracted adverse effects through 2014–17 because fiscal and monetary space in advanced economies is more limited.
- Table 1 and Figure 6 specify detailed paths and numerical adjustments under each scenario (e.g., temporary financial shock: 2013: BL+2008-09 change for VIX; 2014–17: BL*0.8 for some commodity adjustments; protracted and tail scenarios contain larger and more persistent deviations from BL). (Full numeric paths are detailed in the source table and Figure 6.)

### Main results and country groupings
- Aggregate assessment:
  - On average, current fiscal positions in the region are adequate to deal with temporary and moderate protracted external shocks.
  - Fiscal space to face more severe protracted shocks could be limited.
  - External sustainability: despite a recent widening in current account deficits, external sustainability does not appear to be a general source of concern for Latin America.
- Country group differentiation (three groups identified):
  - Group (i) — High vulnerability: Argentina and Venezuela
    - Would face considerable fiscal sustainability issues under large shocks; varying constraints even under moderate shocks.
  - Group (ii) — Moderate vulnerability: Brazil, Ecuador, Mexico, Uruguay
    - Could manage moderate shocks but would benefit from building additional buffers to be able to deploy countercyclical policies under adverse scenarios without reaching debt levels that could raise fiscal sustainability concerns.
  - Group (iii) — Relatively solid: Bolivia, Chile, Paraguay, Peru, and to a lesser extent Colombia
    - Relatively well placed to withstand sizeable shocks and could respond with expansionary policies without putting fiscal solvency at risk.
- Policy implication drawn:
  - Many countries in the region would benefit from building further fiscal space while favorable external conditions last, to be positioned to actively use fiscal policy should the external environment deteriorate markedly.

### Analytical features and limitations
- Methodological contributions:
  - Links external variables to domestic variables to feed standard public and external DSA, enabling scenario-based assessments of debt dynamics that capture correlated shocks and joint dynamic responses.
- Explicit modeling choices and caveats:
  - Focuses on general government gross debt (consistent with WEO reporting); gross rather than net debt choice may understate buffer relevance where public asset accumulation is sizeable.
  - Does not estimate an explicit fiscal reaction function; primary balance projections for scenarios use forecasted revenues and specified expenditure responses (neutral or countercyclical).
  - Assumes international inflation and the pass-through linking nominal and real exchange rate movements such that real and nominal exchange rate shocks map one-to-one for scenarios considered.
  - Scenarios are external/global in nature; country-specific adverse scenarios (e.g., shocks from a large neighbor) are not considered here.
  - Analysis leaves aside potential changes in currency or maturity composition of public and external debt following a shock.

*Source: IMF working paper chapter "10. Key External Indicators under Different Scenarios, 2012–17" (content as provided).*

### section III. These include: (i) the output elasticity of non-commodity fiscal revenue; (ii) real

### _wp1327 - section III. These include: (i) the output elasticity of non-commodity fiscal revenue; (ii) real

### Key modeling assumptions and fiscal rules
- Three features determine fiscal responses studied: (i) the output elasticity of non-commodity fiscal revenue; (ii) real public expenditure policy; and (iii) the extent of reserve accumulation.
- Non-commodity revenues are assumed to vary with nominal GDP, with the elasticity of non-commodity revenues to output assumed to equal one.
- The assumption about accumulation of reserves is needed to determine the path of sovereign spreads.
- Three expenditure rules are analyzed:
  - Baseline fiscal policies: real expenditure growth behaves as in the baseline projection regardless of the scenario.
  - Neutral fiscal policy: expenditure grows at potential GDP growth rates under each scenario (allowing only automatic stabilizers to operate). Exception: where IMF baseline projections for 2013-14 assume expenditure growth above potential, expenditure growth equals the baseline projections.
  - Counter-cyclical fiscal policy: expenditure grows above potential GDP growth rate by a margin proportional (one-to-one) to the gap between actual GDP growth and potential GDP growth.
- Exploring these rules assesses whether fiscal buffers are large enough to: (i) deploy countercyclical fiscal policy, (ii) allow automatic stabilizers to operate, or (iii) require fiscal tightening to ensure debt sustainability.
- VAR-estimated baseline projections are those resulting from the use of the VAR model under WEO baseline global assumptions.

### Scenarios considered (as described)
- Scenario 1: Temporary financial shock affecting 2013 only; financial variables return to projected path under the baseline in 2014.
- Scenario 2: Temporary real shock (commodity prices and world growth) in 2013-14; variables return to baseline path thereafter.
- Scenario 3: Global slowdown over the whole forecast horizon (persistent shock).
- Scenario 4: Lehman-like tail event in 2013-14, with protracted impact on global growth, commodity prices and VIX.

### Key results — Latin America (aggregates and mechanisms)
- Under the WEO Baseline projections:
  - Both public and external debt ratios are, on average, expected to decline only slightly (less than 2 percentage points of GDP) through 2017.
  - Commodity-related revenues will continue to be a major factor pushing public debt down, mostly offset by continuation of non-commodity primary deficits.
  - With (non-interest) current accounts broadly balanced on average, external debt dynamics are driven by large non-debt-creating capital inflows (FDI and equity portfolio flows) and further foreign asset accumulation.
- Under baseline policies and temporary shocks (scenarios 1 and 2):
  - Temporary financial shock (scenario 1) would lead to an increase of public debt of about 7 percentage points of GDP by 2017 (relative to the baseline), with most impact from weaker economic activity and weaker primary balances, reinforced by real depreciation in countries with foreign-currency denominated debt.
  - Temporary real shock (scenario 2) would have a much more muted impact on public debt.
  - Transitory shocks would not have visible effects on external debt dynamics; effects of real depreciation and higher external interest rates under scenario 1 are largely offset by projected current account adjustment.
  - Sharp increase in sovereign spreads under scenario 1 would induce only a mild effect on average interest rates due to relatively low levels of short-term debt.
- Under baseline policies and persistent shocks (scenarios 3 and 4):
  - Scenario 4 would increase public debt, on average, by 20 percentage points of GDP (to around 55 percent) by 2017, due to sharp decline in output, weakening of non-commodity primary balances, considerably lower commodity revenues, and real depreciation effects.
  - External debt would remain at manageable levels under these scenarios, increasing only 5-6 percentage points of GDP by 2017—mainly reflecting lower growth, real depreciations, and a likely drop in non-debt capital inflows, partially offset by projected current account improvements.

### Key results — active (neutral and countercyclical) policies
- If authorities respond to scenarios 1 and 2 with neutral or countercyclical policies:
  - Public debt levels by 2017 would reach about 46-51 percent and 41-44 percent of GDP, respectively (Figure 8, upper panel).
  - Primary balances would deteriorate only marginally and would not require very large adjustments to keep public debt on a sustainable path.
  - External debt paths would not be significantly affected even under active policies.
- Scenario 3:
  - Debt trajectory under countercyclical policy would be very similar to neutral policy because potential GDP growth would also decline, making the output gap small and reducing scope for expansionary fiscal policy.
  - If authorities mistakenly treat the new lower potential as the old potential, a policy intended to be neutral could be stimulative, worsening the primary balance and public debt dynamics.
- Scenario 4:
  - More scope exists for expansionary countercyclical policy as output falls significantly below the new lower potential.
  - Neutral policy (automatic stabilizers) and countercyclical policy would lead to substantial increases in public debt—more than 20 and 30 percentage points of GDP by 2017, relative to the baseline, respectively.
  - Under countercyclical policies public debt could reach about 65 percent of GDP, at which point concerns about fiscal sustainability may emerge.

### Country-specific results and country groupings
- Under baseline external conditions:
  - Public debt ratios will continue to decline moderately in most countries; Brazil and Uruguay (starting from higher levels) would experience the largest decreases.
  - Venezuela is a notable exception: debt is projected to increase by 30 percentage points of GDP, reaching 80 percent of GDP, by 2017.
  - External debt is projected to remain broadly stable in most countries.
- Across countries, ability to undertake countercyclical policy differs. Three groups identified in face of protracted shocks (scenarios 3 and 4):
  1. Tight-constrained group: Argentina and Venezuela
     - Would likely need sizeable fiscal consolidation in the face of adverse shocks (including moderate ones) to keep public debt sustainable; limited scope for countercyclical policy.
  2. Intermediate group: Brazil, Mexico, Uruguay, and—to a lesser extent—Ecuador
     - Public debt dynamics less vulnerable to moderate shocks but sensitive to tail events.
     - Can deal with a moderate deterioration (scenario 3), although debt ratios could reach levels ranging from 55 to 65 percent of GDP.
     - Under severe events (scenario 4), scope for countercyclical and sometimes neutral policies would be limited without raising sustainability concerns.
     - In countries with well-established fiscal rules (e.g., Brazil, Mexico), adherence to the rule following a temporary deviation would help keep public debt sustainable, though returning to targets could require significant consolidation.
  3. Better-positioned group: Bolivia, Chile, Paraguay, Peru, and—to a lesser extent—Colombia
     - Appear able to weather marked worsening of external conditions—even undertaking countercyclical policies—without jeopardizing fiscal solvency.
     - Peru appears strongest under extreme circumstances.
     - Chile and Paraguay: under scenario 4 and countercyclical policies both primary balance gap and debt ratios could increase significantly but debt would remain at relatively moderate levels.
     - Colombia: debt levels could reach over 50 percent of GDP and primary balance gap -4 percent of GDP, figures that do not, by themselves, raise solvency concerns.
- External sustainability:
  - Even under severe scenarios (3 and 4) countries in the region would generally maintain external sustainability: debt levels would remain moderate and current account balance gaps would be closed or positive.
  - Current accounts tend to improve after large negative external shocks, especially financial ones.
  - Exception: Venezuela, where external sustainability concerns could be raised in case of a tail event.

### Conclusions and policy implications
- Latin America experienced a sharp improvement in macroeconomic fundamentals over the last decade, partly due to a highly favorable external environment.
- With prospects of less favorable conditions, and the possibility of sharp deterioration, fundamentals may change drastically.
- The framework used examines public and external debt sustainability under alternative negative external scenarios to assess adequacy of policy buffers.
- Main findings:
  - External sustainability does not appear to be a general source of concern for Latin America.
  - Fiscal space to deal with a protracted deterioration of the external environment may be limited in several countries.
- Policy implication:
  - The region would benefit from further strengthening buffers, while favorable conditions last, to be in a position to actively use fiscal policy should the external environment deteriorate markedly.
- Country differentiation:
  - (i) Argentina and Venezuela: tight constraints likely precluding countercyclical policy even for moderate shocks.
  - (ii) Brazil, Mexico, Uruguay, (and Ecuador to a lesser extent): some space to run countercyclical policy but would benefit from building further space to avoid sustainability concerns under severe scenarios.
  - (iii) Bolivia, Chile, Paraguay, Peru, (and Colombia to a lesser extent): appear positioned to weather sizeable shocks with countercyclical policies without compromising debt sustainability.

*Source: _wp1327 - section III. These include: (i) the output elasticity of non-commodity fiscal revenue; (ii) real (excerpts provided).*

### References

### _wp1327 - References

### References (bibliographic entries)
- Adler, G., and C. E. Tovar, 2012, ―Riding Global Financial Waves: The Economic Impact of Global Financial Shocks on Emerging Market Economies,‖ IMF Working Paper 12/188 (Washington: International Monetary Fund).
- Adler, G., and S. Sosa, 2012, ―Intra-Regional Spillovers in South America: Is Brazil Systemic after All?‖ IMF Working Paper 12/145 (Washington: International Monetary Fund).
- Adler, G., and S. Sosa, 2011, ―Commodity Price Cycles: The Perils of Mismanaging the Boom,‖ IMF Working Paper 11/283 (Washington: International Monetary Fund).
- Bloom, Nicholas; 2009; ―The Impact of Uncertainty Shocks,‖ Econometrica, Vol. 77, No. 3, May, 2009.
- Carriere-Swallow, Y., and L. F. Cespedes, 2011; ―The Impact of Uncertainty Shocks in Emerging Economies,‖ Documento de Trabajo N° 646, Banco Central de Chile.
- Celasun, O., X. Debrun, and J.D. Ostry, 2006, ―Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A  ̳Fan-Chart‘ Approach,‖ IMF Working Paper 06/67 (Washington: International Monetary Fund).
- Cespedes, L.F., and A. Velasco, 2011, ―Was this Time Different?: Fiscal Policy in Commodity Republics,‖ BIS Working Paper No 365 (Basel: Bank of International Settlements).
- Cuadra, G., J. Sanchez, and H. Sapriza, 2010, ―Fiscal Policy and Default Risk in Emerging Markets,‖ Review of Economic Dynamics, Vol. 13 (2), April 2010.
- Cherif, R., and F. Hasanov, 2012, ―Public Debt Dynamics: The Effects of Austerity, Inflation, and Growth Shocks,‖ IMF Working Paper 12/230 (Washington: International Monetary Fund).
- Favero, C., and F. Giavazzi, 2007, ―Debt and the Effects of Fiscal Policy,‖ NBER Working Paper No. 12822 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Favero, C., and F. Giavazzi, 2009, ―How Large are the Effects of Tax Changes?,‖ NBER Working Papers No. 15303 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Frankel, J.A., C.A. Végh, and G. Vuletin, 2011, ―On Graduation from Fiscal Procyclicality,‖ NBER Working Paper No. 17619 (Cambridge, Massachusetts: National Bureau of Economic Research).
- Hatchondo, J. C., L. Martinez and F. Roch, 2012, ―Fiscal Rules and the Sovereign Default Premium,‖ IMF Working Paper 12/30 (Washington: International Monetary Fund).
- Inter-American Development Bank, 2008, ―All that Glitters May Not be Gold. Assessing Latin America`s Recent Macroeconomic Performance,‖ Annual Report.
- International Monetary Fund, 2002, Assessing Sustainability (Washington: International Monetary Fund). Available at: www.imf.org/external/np/pdr/sus/2002/eng/052802.pdf
- International Monetary Fund, 2003, Sustainability Assessments-Review of Application and Methodological Refinements (Washington: International Monetary Fund). Available at: www.imf.org/external/np/pdr/sustain/2003/061003.pdf
- International Monetary Fund, 2005, Information Note on Modifications to the Fund’s Debt Sustainability Assessment Framework for Market Access Countries (Washington: International Monetary Fund). Available at: www.imf.org/external/np/pp/eng/2005/070105.pdf
- International Monetary Fund, 2011, Modernizing the Framework for Fiscal Policy and Public Debt Sustainability Analysis (Washington: International Monetary Fund). Available at: www.imf.org/external/np/pp/eng/2011/080511.pdf
- International Monetary Fund, 2012a, Regional Economic Outlook: Western Hemisphere—Rebuilding Strength and Flexibility (Washington: April 2012).
- International Monetary Fund, 2012b, ―Macroeconomic Policy Frameworks for Resource-Rich Developing Countries‖ (Washington: International Monetary Fund). Available at: www.imf.org/external/np/pp/eng/2012/082412.pdf
- Izquierdo, A., R. Romero, and E. Talvi, 2007, ―Booms and Busts in Latin America: The Role of External Factors,‖ IADB, Research Department Working Paper No. 631 (Washington: Inter-American Development Bank).
- Kawakami, K., and R. Romeu, 2011, ―Identifying Fiscal Policy Transmission in Stochastic Debt Forecasts,‖ IMF Working Paper 11/107 (Washington: International Monetary Fund).
- Osterholm, P., and J. Zettelmeyer, 2008, ―The Effect of External Conditions on Growth in Latin America,‖ IMF Staff Papers, Vol. 55, Number 4.
- Talvi, E. and C. Vegh, 2005, ―Tax Base Variability and Procyclicality of Fiscal Policy,‖ Journal of Development Economics, 78 (1).
- Tanner, E., and I. Samake, 2008, ―Probabilistic Sustainability of Public Debt: A Vector Autoregression Approach for Brazil, Mexico, and Turkey,‖ IMF Staff Papers Vol. 55, No 1.
- Tornell, A., and P. Lane, 1999, ―The Voracity Effect,‖ American Economic Review, 891:22–46.

### Annex figures, notes, and data labels (captions and numeric values preserved)
- Annex Figure A1. Factors Driving Public Debt Dynamics, 2002-12 1/ (cumulative contributions, percent of GDP)
  - Caption data labels and numeric values appearing in figure:
    - 66.2
    - 35.1
    - -60
    - -40
    - -20
    - 0
    - 20
    - 40
    - 60
    - 6
    - 26
    - 46
    - 66
    - 86
    - 106
    - 126
    - 2002200520082011 (x-axis labels as shown)
    - Primary deficit (rhs)
    - Real interest rate   (rhs)
    - Real GDP  growth  (rhs)
    - Real Exchange  Rate (rhs)
    - Other (rhs)
    - Public Debt
  - Country/series header values included in figure panels:
    - LatinAmerica  (average) — 165.0; 45.2; -140; -100; -60; -20; 20; 60; 25; 65; 105; 145; 185; 225; 2002200520082011
    - Argentina — 69.1; 34.8; -80; -60; -40; -20; 0; 20; 40; 60; -1; 19; 39; 59; 79; 99; 119; 2002200520082011
    - Bolivia — 15.2; 11.4; -50; -10; 30; -35; -15; 5; 25; 45; 65; 2002200520082011
    - Chile — 43.9; 32.2; -50; -30; -10; 10; 30; 50; -6; 14; 34; 54; 74; 94; 2002200520082011
    - Colombia — 79.8; 64.1; -80; -40; 0; 40; 80; 0; 20; 40; 60; 80; 100; 120; 140; 160; 2002200520082011
    - Brazil — 44.8; 12.9; -60; -40; -20; 0; 20; -15; 5; 25; 45; 65; 2003200620092012
    - Paraguay — 47.1; 19.6; -50; -30; -10; 10; 30; 50; -3; 17; 37; 57; 77; 97; 2003200620092012
    - Peru — 54.1; 18.8; -50; -30; -10; 10; 30; 50; 4; 24; 44; 64; 84; 104; 2002200520082011
    - Ecuador — 107.2; 52.3; -90; -50; -10; 30; 70; 17; 57; 97; 137; 177; 2002200520082011
    - Uruguay — 46.5; 46.8; -90; -50; -10; 30; 70; -44; -4; 37; 77; 117; 2002200520082011
    - Venezuela — 45.7; 43.1; -20; 0; 20; 26; 46; 66; 2002200520082011
    - Mexico — (label only shown in figure)
  - Source line in figure: Sources: IMF International  Financial  Statistics, IMF country desks and authors' calculations.

- Annex Figure A2. Components of Primary Balance Dynamics, 1995-2012 1/ (Index, 2003=100 unless otherwise states, in real terms)
  - General series labels and axes values preserved:
    - 0
    - 50
    - 100
    - 150
    - 200
    - 250
    - 300
    - 350
    - 199519982001200420072010 (x-axis labels as shown)
  - Series shown (labels preserved as in figure):
    - Commodity Revenue
    - Non-Comm.  Revenue
    - Primary Expenditure 2/
    - Real  GDP
    - Real  GDP (at potential  growth)  3/
  - Country panels listed in figure:
    - Latin America  (average)
    - Argentina
    - Bolivia
    - Brazil
    - Chile
    - Colombia
    - Ecuador
    - Mexico
    - Paraguay
    - Peru
    - Uruguay
    - Venezuela
  - Source line in figure: Source:IMF InternationalFinancialStatisticsand authors'  calculations.
  - Figure notes:
    - 1/ Using  GDP deflator  for  all series.Data  on commodity-related  revenues  for  Ecuador,  Mexico and Venezuela  (Chile)  are  avilable  from  2000  (2005).
    - 2/ Expenditure  base year  equals  percent  of revenues  in  that year.
    - 3/ Based on  projected  growth  for  2015-17.

- Annex Figure A3. Factors Driving Primary Balance Dynamics, 2002-12 1/ (cumulative contributions, percent of GDP)
  - Caption data labels and numeric values appearing in figure:
    - -50
    - -30
    - -10
    - 10
    - 30
    - 50
    - -100
    - -60
    - -20
    - 20
    - 60
    - 100
    - -90
    - -50
    - -10
    - 30
    - 70
    - -40
    - 0
    - 40
    - -80
    - -40
    - -70
    - -30
    - 10
    - 50
    - 90
    - 130
    - -120
    - -80
    - -40
    - 0
    - 40
    - 80
    - 120
    - -150
    - -110
    - -70
    - -30
    - 10
    - 50
    - 90
    - 130
    - -120
    - -80
    - -40
    - 0
    - 40
    - 80
    - 120
    - 2002200520082011 (x-axis labels as shown)
  - Panel labels and countries shown:
    - LatinAmerica  (average)
    - Argentina
    - Bolivia
    - Brazil
    - Chile
    - Colombia
    - Ecuador
    - Mexico
    - Paraguay
    - Peru
    - Uruguay
    - Venezuela
  - Series labels visible in figure:
    - Non-Commodity  PB
    - Commodity  Revenue
    - Primary deficit (rhs)
  - Source line in figure: Sources: IMF International  Financial  Statistics, IMF country desks and authors' calculations.

*Content and figures as provided in the source PDF.*

### Annex Figure A4. Factors Driving External Debt Dynamics, 2002-12 1/

### Annex Figure A4. Factors Driving External Debt Dynamics, 2002-12 1/

### Decomposition of external debt dynamics (cumulative contributions, percent of GDP)
- The annex includes stacked cumulative-contribution charts of factors driving external debt dynamics for Latin America (average) and individual countries for 2002–2011:
  - Displayed factor labels: Real GDP growth (rhs); Non-debt flows (rhs); Interest rate (rhs); Real Exchange Rate (rhs); CA (exc. ints pmts, rhs); Other (rhs); External debt.
  - Numeric scale ticks shown in figures include: -220, -180, -160, -140, -120, -100, -80, -70, -60, -59, -58, -59, -59, -59, -59, -59, -59, -59, -59, -59, -40, -20, 0, 20, 40, 60, 80, 100, 120, 140, 160, 180, 200, 220, 241, 301, 361 (as shown across panels).
- Selected numeric values appearing in the figure panels (as printed in the source):
  - Top-left panel sequence: 61.9, 28.5, -120, -80, -40, 0, 40, 80, 120, -58, -18, 22, 62, 102, 142, 182 (associated visually with years 2002 2005 2008 2011).
  - Latin America (average) panel head numbers include: 160.9, 32.2 (panel axis and label values shown in the figure).
  - Multiple country panels show prominent numeric headings such as: 55.6, 20.7; 41.7, 13.5; 58.2, 39.2; 38.2, 22.6; 65.7, 27.3; 23.0, 28.0; 53.9, 22.4; 49.1, 25.3; 96.3, 40.4; 38.2, 42.0 (each associated with specific country panels and the 2002–2011 time axis).
- Source data cited: IMF International Financial Statistics, IMF country desks and authors' calculations.

### Forecasting power of the VAR model during the Lehman event (Figure A5)
- The VAR model forecasting exercise is shown for the Lehman event period across countries (2008q3–2011q1).
- Panels show, for each country, three series/lines:
  - Real GDP (q-o-q percent change): Observed, forecast, 95% C.I.
  - Trade Balance (q-o-q change, in percent of GDP)
  - REER (q-o-q change, in percent)
- Countries with separate panels include: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela.
- Axis ticks and ranges visible in the panels include:
  - Real GDP panels: ranges shown from -10 to 10 (percent), with quarter labels 2008q3, 2009q1, 2009q3, 2010q1, 2010q3, 2011q1.
  - Trade Balance panels: ranges shown from -50 to 50 (percent of GDP) in some countries, and narrower ranges in others (e.g., -6 to 6).
  - REER panels: ranges shown from -40 to 40 (percent) in some countries and smaller ranges in others.

### Scenario projections and factors driving public and external debt dynamics (Figures A6–A16)
- The annex includes country-specific panels titled "Factors Driving Public and External Debt Dynamics, 2003-17 1/" and scenario fan charts for 2012–2015 (and up to 2017 in key domestic variables plots).
- Each country panel shows:
  - Bars for contributions of different factors to the deviation of debt ratios from the baseline under alternative global scenarios.
  - Labels showing WEO Baseline 2/ and Scenario 1 3/ through Scenario 4 3/.
  - Factor labels such as: Current account (exc. interests); Interest rate; Real GDP growth; Real Exchange Rate; Other; Non-debt flows; External debt; Public Debt; Commodity Revenue; Non-commodity PB; Real interest rate; etc.
- Prominent numeric headings printed for country panels (sample values exactly as presented):
  - Argentina: 32.2, 34.9; External Debt panels show values 45.2, 39.8.
  - Bolivia: 20.7, 21.3; External Debt panels show 74.1, 34.8, 29.4.
  - Brazil: 13.5, 15.6; External Debt panels show 74.8, 64.1, 54.0.
  - Chile: 56.5, 39.2, 33.7; External Debt panels show 12.6, 11.4, 13.5.
  - Colombia: 40.1, 22.6, 19.7; External Debt panels show 45.6, 32.2, 27.3.
  - Ecuador: 27.3, 29.4; External Debt panels show 47.8, 18.8, 20.8.
  - Mexico: 23.2, 28.0, 25.9; External Debt panels show 45.6, 43.1, 42.9.
  - Paraguay: 22.4, 19.8; External Debt panels show 12.9, 9.6.
  - Peru: 48.2, 25.3, 22.3; External Debt panels show 19.6, 16.3.
  - Uruguay: 40.4, 33.4; External Debt panels show 52.3, 43.0.
  - Venezuela, Rep. Bol.: 48.5, 42.0, 46.2; External Debt panels show 49.3, 51.3, 79.6.
- Key domestic variables under alternative scenarios (2012–17) are plotted as deviations from baseline for:
  - Real GDP Growth (percent)
  - Real GDP (Index)
  - Real Exchange Rate (Index)
  - Current Account (exc. ints., % GDP)
  - Primary Balance (percent of GDP)
  - Real Interest Rate (percent)
  - Sovereign Spread (percent)
- Note (from figure footnotes):
  - 1/ Public and external debt dynamics under alternative global scenarios.
  - 2/ Country desk projections (based on WEO baseline assumptions).
  - 3/ Based on differential between VAR forecasts and VAR baseline. Bars denote contributions of different factors to the deviation of the debt ratios from the baseline.
  - 1/ Deviation in percent of baseline (for key domestic variables plots).

### Notable axis and range values used across scenario panels
- Debt and factor contribution vertical scales shown in multiple panels include ticks such as: -140, -120, -100, -80, -70, -60, -50, -40, -30, -25, -20, -15, -14, -12, -10, -9, -8, -6, -5, -4, -3, -2, -1, 0, 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 12, 13, 15, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 59, 62, 63, 65, 66, 70, 72, 73, 74, 75, 76, 78, 79, 81, 83, 85, 92, 95, 96, 100, 101, 104, 140, 141 (as printed across panels).

---

### VAR model estimation results (Table A1) — overview
- Table A1 presents VAR estimation results for multiple country specifications. Selected metadata and summary statistics (exactly as printed):
  - Observations sequences printed across the table include: 76 76 76 82 82 82 81 81 81 77 77 77 85 85 85 67 67 67 (shown as concatenated Observations lines in the table).
  - df_eq values printed: 14.7, 14.7, 14.7, 17.3, 17.3, 17.3, 21.3, 21.3, 21.3, 21.3, 14.7, 14.7, 14.7, 10.7, 10.7, 10.7, 20.7, 20.7, 20.7 (as printed).
  - r2_3, r2_2, r2_1 entries (sample printed values): r2_3: 0.468, 0.468, 0.468, 0.337, 0.337, 0.337, 0.519, 0.519, 0.519, 0.447, 0.447, 0.447, 0.267, 0.267, 0.267, 0.564, 0.564, 0.564 (as printed).
  - aic values printed include: 12.3, 12.3, 12.3, 12.3, 12.3, 12.3, 10.5, 10.5, 10.5, 10.6, 10.6, 9.6, 9.6, 9.6, 12.7, 12.7, 12.7 (as printed across panels).
- The table reports many estimated coefficients and standard errors (standard errors in parentheses) and significance notations:
  - Significance legend: *** p<0.01, ** p<0.05, * p<0.10, + p<0.15.
- Example coefficient excerpts as printed (preserving exact formatting and sign where visible in the table):
  - L.growth coefficients include entries such as 0.870***, -0.199***, 1.401**, 0.028, -0.092***, -0.505, -0.531***, -0.030, 0.237, 0.116, -0.026, 0.743***, -0.232**, -0.068***, 0.049, -0.161**, -0.22 (all as shown in the table matrix).
  - L.dlnreer coefficients include entries such as -0.048**, -0.002, 0.386***, 0.024, -0.005+, 0.064, 0.059, -0.086***, 0.124, 0.003, -0.009, 0.091, 0.015, -0.004, -0.06, -0.005, -0.022, 0.284*** (as printed).
  - Other variable lag coefficients (wgdp_grL3, vixL0, energyL0, foodL2, metalsL0, dprbalL1, etc.) are reported with coefficients and parentheses for standard errors across country-specific regressions (as printed in the table).
- The table spans country groupings including Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela (as printed headings).

### Estimation of country sovereign spreads — OLS (Table A2) — key coefficients and statistics
- Table A2 reports OLS estimates for sovereign spreads with multiple model columns (1) through (7). Selected coefficients and exact printed values:
  - L.dca coefficient in column (1): -11.097 (standard error printed in parentheses: (9.024)).
  - L.ded coefficient entries: 1.262, 0.155 (printed with standard errors (5.966) and (5.895)).
  - L.dpb entries: -3.679, -4.580, -4.586 (printed with standard errors (11.681), (12.038), (11.976)).
  - L.dpd coefficient (prominent and consistently positive): 18.846*, 18.623*, 18.721*, 18.737*, 19.655**, 11.780, 14.275 (standard errors printed; e.g., (10.588), (10.579), (9.753), (9.749), (9.720), (19.503), (19.194)).
  - L.dfxresy coefficient (robust negative and highly significant across models): -8.522***, -8.633***, -8.625***, -8.807***, -9.024*** (standard errors printed: (3.190), (3.178), (3.052), (3.012), (3.163)).
  - dlnreer coefficient: -6.596**, -6.592**, -6.591**, -6.587**, -6.620**, -6.677**, -6.691** (standard errors printed: (2.628), (2.627), (2.609), (2.607), (2.627), (2.601), (2.619)).
  - dvix coefficient: 5.187**, 5.108**, 5.111**, 5.159**, 4.867**, 5.165**, 4.866** (standard errors printed ~ (2.415), (2.318), (2.317), (2.323), (2.391), (2.334), (2.398)).
  - Interaction terms (_IifsXdvi_2* family) with multiple coefficients printed; selected examples:
    - _IifsXdvi_21: 12.907**, 12.960**, 12.955**, 12.907**, 13.229**, 12.840**, 13.183** (standard errors ~ (5.332) etc.).
    - _IifsXdvi_24: 7.957*, 8.141*, 8.139*, 8.094*, 8.330*, 8.063*, 8.311* (standard errors ~ (4.662) etc.).
    - _IifsXdvi_28: 18.641***, 18.657***, 18.654***, 18.602***, 18.697***, 18.615***, 18.708*** (standard errors ~ (6.207) etc.).
    - _IifsXdvi_29: 2.649, 2.818, 2.817, 2.731, 3.095, 2.689, 3.069 (standard errors ~ (2.616) etc.).
    - _IifsXdvi_299: 10.880**, 10.694**, 10.692**, 10.633**, 11.039**, 10.595**, 11.017** (standard errors ~ (4.334) etc.).
  - L.dpd_sq coefficient (reported in some columns): 0.039, 0.030 (standard errors (0.103), (0.102)).
- Model sample and fit statistics (exactly as printed):
  - Observations: 2,990 (reported across all columns).
  - R-squared: 0.148, 0.147, 0.147, 0.147, 0.145, 0.147, 0.145 (as printed for columns (1)–(7)).
  - F-statistics reported for columns: F24.882, 5.432, 6.302, 7.342, 9.292, 6.332, 8.08 (printed as concatenated F24.8825.4326.3027.3429.2926.3328.08).
  - Robust standard errors reported in parentheses.
  - Significance legend: *** p<0.01, ** p<0.05, * p<0.10, + p<0.15.

*Italic source: IMF International Financial Statistics, IMF country desks and authors' calculations, as printed in the Annex and tables.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1327.pdf_