Study Recommends Securitization as a Means of Clearing Stock of Government Arrears

Summary

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Governments emerging from a period of economic upheaval-such as the hyperinflation of the late 1980s in Argentina or the collapse of the centralized economies of the Baltics, Russia, and other former Soviet Union countries-have often faced difficulties in making payments on a timely basis and have had to deal with the buildup of expenditure arrears. By running arrears, governments essentially borrow from domestic agents without their consent. Pensioners, wage earners, and others are then left with implicit claims on the government, for which they have no title. These claims are-at best-honored on an unspecified date for an uncertain value. Also, creditors cannot trade or enforce untitled government claims-a limitation that can seriously hamper their financial management capacity.

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Study Recommends Securitization as a Means of Clearing Stock of Government Arrears

In Working Paper 98/70, Government Expenditure Arrears: Securitization and Other Solutions, Alberto Ramos of the IMF's Western Hemisphere Department presents and evaluates various options for addressing the arrears problem. He recommends that governments recognize their implicit financial liabilities, set a timetable for their clearance, and issue market-negotiable titles-that is, securitize their arrears. He also documents several recent country ex...

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