Data provided by iNet BFA
Loading...
See More

Debt useful but dangerous - analyst

Nov 01 2012 13:33 Sapa

Related Articles

Govt debt to hit R1.7 trillion

Consumers lie to get loans

South Africans borrow to buy food

Unsecured lending surges to R381bn

Consumers owe more than R1 trillion

Recession sends govt debt into overdrive

 

Johannesburg - Developing economies must treat debt with caution because - while useful - it is dangerous, an SA Reserve Bank conference heard on Thursday.

"Debt is a fixed obligation which, if you cannot meet the commitments, it gives rise to very costly consequences," chief economist at Citi Group, Willem Buiter, said at a discussion on monetary policy and economic growth.

Buiter said developing nations had to manage their sovereign, bank and household debt cautiously as they tried to get out of the current global economic crisis.

"Be extremely cautious that you don't take more than you can service. Try to issue liabilities that involve an element of risk sharing between the creditor and the debtor," he said.

"As for international contracts, be very careful that you treat the business cycle symmetrically. If you stimulate and borrow when the economy goes down then you must tighten... when the economy grows."

He said governments of developing nations needed to be innovative in borrowing contracts they devised to grow their infrastructure.

"Give, for instance, a 50% equity stake in some infrastructure project so that you share the risks as well as the returns. There you don't have the bankruptcy threats and the default threats which come with debt contracts."

Buiter urged South Africans and the rest of the continent to "wear helmets for the rest of the decade".

"The world is going to be a very dangerous place for the next 10 years, with advanced economies still needing about a decade, if you count the US and Japan, to get out of the debt problem that they got into," he said.

"So there is going to be a fallout for developing economies like South Africa."

The conference is held every second year to discuss monetary policy issues and obstacles to economic growth.

 
sarb  |  debt
NEXT ON FIN24X

 
 
 

Read Fin24’s Comments Policy

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
2 comments
Add your comment
Comment 0 characters remaining
 

Company Snapshot

We're talking about:

Small Business

A cash flow crunch often occurs in small businesses trying to balance cash coming in with cash going out. Watch this video to help you improve.
 
 

Disregard of interest rate impact deplored

A Fin24 user protests what he sees as disregard of the broader impact of increased interest rates on those who cannot yet say "bring it on" with a smile.

 
 

Start saving...

No need to keep up with the Joneses
Where can you stash your cash?
Time the key for retirement saving
Dummy's guide to saving

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...
Loading...