Public Finance and Debt in Development
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Level: Undergraduate, Graduate
Division: The New School for Public Engagement
School: Milano School of International Affairs, Management, and Urban Policy
Department: Milano General Curriculum
Course Number: NINT 5268
Course Format: Lecture
Location: NYC campus
Permission Required: No
A robust and efficient public sector is crucial, however large or small the role of the government in a country’s development strategy, and yet according to the International Monetary Fund, 40 developing country governments had external payment arrears and/or were in debt rescheduling during 2006-2010; i.e., 40 countries were in some form of debt crisis at some point in that period (to which one could add Iceland and the EU debt-crisis countries). Was this due to bad management, bad policy or bad luck? IMF and the World Bank estimated that of the 34 “heavily indebted poor countries” that had “graduated” from debt crises, only 12 were judged at “low risk” of debt distress as of September 2012. In addition, Ecuador defaulted on some of its foreign debt at the end of 2008, saying it should not repay “illegitimate” (“odious”) debts; we can imagine its creditors thought otherwise but they accepted to swap the debt in question for new loans at 35 cents on the dollar. Why is international sovereign borrowing (i.e., by governments) so fraught, especially in developing countries, and does it have to be this way? To help answer such questions, this course proposes to study how public finance at national level works and how it should work. What principles on the use of public monies should guide government budgeting? What procedures should governments follow (budget formulation, public vetting and decision making, monitoring implementation)? How should governments raise fiscal revenues efficiently and fairly? When should they borrow, from whom and on what terms? What is a “sustainable” public debt? Why are developing countries unusually vulnerable to debt crises? What has happened to presumed better-managed European countries? How are debt crises resolved in practice (who are the players and how do they interact)? How can the process of debt workouts become more orderly and fair? Where does justice lie?