Government Or The Debt Problems Of Study

How to keep the government from large risks and how to ensure the fiscal stability and Sustainability have become important issues all over the world. If we pay attention to fiscal risks made by the uncertainties, we can find that these risks have something to do with contingent liabilities. Empirical evidence from many countries has proved that the analysis on fiscal situation and fiscal policy is incomplete if the government ignored the "implicit" fiscal risks. Recently, some international organizations such as the World Bank, IMF, EU have focused on this issue and suggested that the government fiscal report should include the relevant information about contingent liability clearly. Many countries have already started to pay attention to contingent liabilities, and some of them have made fundamental progress. Such countries as New Zealand, Czech, USA, Canada, Northern Africa, Brazil, Columbia, etc. have protected themselves against accumulation and explosion of contingent liabilities and fiscal risks in a legal framework.In our country, the budget only reflects part of government activities, especially it fails to identify, quantify, report and reveal the government contingent liabilities outside the budgetary system. This leads to the accumulation of the contingent liabilities and their transformation into direct liabilities. These contingent liabilities potentially threats to the fiscal stability and economic sustainable development, and may lead to the explosion of the fiscal risks. So, it is very significant to research and solve the problems of contingent liabilities existing in various levels of governments, particularly to analyze its formation mechanism and negative effects, to propose some corresponding institutional arrangement and technical detection specifically. The tasks can reduce the government fiscal risks and ensure the macro economical stability. This thesis constructs a theoretical framework for the analysis of the government contingent liabilities by taking our country's special institutional scene——gradual transition——into consideration at first. Then, on the basis of the framework, it inspects a system of contingent liabilities in which includes central government and local governments in a positive perspective. It also explores and analyzes the formation mechanism of our country's contingent liabilities in the process of government—dominant institutional transition through discussing "time—redemption" strategy and "complementary substitution" model. Consequently, the thesis uses the sample which is made of countries in eastern Asia area to analyze the financial crisis that is induced by government implicit foreign debts in the background of open economy, and also has some reflections on our country's implicit foreign debt. Later, we evaluate the scale of contingent liabilities in our country and the levels of moral hazard and institutional public risks in the aspect of fiscal (public) risks. Finally, the thesis concludes that the government should reform the traditional system of government contingent liabilities and should initiate fiscal innovations on institution, management and techniques by clarifying the responsibility and risks taken by the governments. There are seven chapters except this introduction in the thesis. The main points of each chapter are below.As a new field, there are many unsolved problems about our country's contingent liabilities, so theoretical analysis on the problems is the proper logical starting point. The thesis begins with the manners by which the government finances the budgetary deficit during the period of transiting. Then we categorize our country's public debts according to the fiscal risk matrix proposed by Hana Polackova Brixi and induce the following research caliber on contingent liabilities from the classification above. On this basis, we discuss the government's double identities (economic agent and public agent) and also define the concept of contingent liabilities in economics and accounting. Meanwhile, we point out that the government as a public agent confronts with legal (explicit) contingent liability and presumed (implicit) contingent liability; that government contingent liability has the characteristics of uncertainty and timeliness, it is affected by the government subjective judgment and is performed as presumed contingent liabilities; that the main channels for the accumulation of contingent liabilities are institutional arrangement, fiscal opportunism behavior and great responsibilities taken by government for stability, development and transition; that most contingent liabilities take the form as government guarantees.By analyzing the contingent liabilities of central government, we find that during the period of transiting, Chinese government has accumulated large quantities of implicit, contingent liabilities through a special form——system of hidden guarantees constructed by the government. This system includes many guarantees provided by governments to many other agents such as state owned enterprises(SOEs), state owned banks, state owned assets management companies, local governments and pension funds.Having focused and analyzed on the contingent liabilities of local governments, we find that the local governments' debts can be explained by economics and also have their proper rationale. But because of the absence of legal rights of financing, local governments in different levels have accumulated lots of contingent liabilities through making "diversity-financing" as an excuse. We also analyze the local government contingent liabilities in many aspects such as its scale, structure, etc. At the same time, the thesis exploits some reasons why local government has accumulated contingent liabilities in such aspects as institutional innovation, fiscal institution, economic development and debt management, etc.We also find out the special path along which the contingent liabilities form and accumulate under the scene of gradual transition and institutional changes in China. By analyzing the sample made of USSR and eastern European countries and a number of positive analysis on the special situation in China, we work out that Chinese government indeed accumulate large number of contingent liabilities when it promotes the transition. During the process of gradually transiting, Chinese government delays the relevant public expenditure through "time redemption" strategy. In the short run, this delay is realized by over-accumulation of implicit, contingent liabilities under current cash based budgetary system, many fiscal activities have been moved out of the supervision of the budgetary system, and many kinds of expenditure in budget have been replaced by "quasi-fiscal activities". The following result must be that current pressure has been eased actually, the budgetary report has become more balanced and performed lower levels of deficits and debt ratio, but the cost of current exciting performance is that fiscal cost in the long run will increased and fiscal risk will be very high in the future. At the end of this chapter, we use "complementary substitution" model to confirm the conclusions above.Extending our insights to open economy, we find out that government contingent liabilities exists in the form of implicit foreign debt and it is performed that the government provides hidden guarantees to financial institution and firm's foreign borrowings. Many economists have thought that government implicit foreign debt may be one of the most important factors which lead to financial crisis in eastern Asia. The thesis analyzes the logics theoretically and practically as follows: the government provides many implicit guarantees to banks and firms through quasi-fiscal activities, these guarantees lead banks and firms to moral hazard behavior, then the moral hazard behavior induces the financial crisis and currency crisis. Our country also has lots of implicit foreign debt in various forms, the lessons from the countries in which the crisis exploded require our reflection.When analyzing government contingent liabilities in the perspective of fiscal (public) risks, traditional methods of fiscal analysis only are limited to revenue, expenditure and debts in budget sheets, so it has ignored the risks made by implicit and contingent liabilities. Even though we take the risks into consideration, it also ignores the assets which are used to pay the debt off. In this thesis, we employ the method of fiscal Sustainability analysis to construct a so called generalized asset-liability framework and then use it to estimate various assets that the government can use to pay off the debts and the level of comprehensive liabilities including government implicit, contingent liabilities. We also evaluate the Sustainability of the whole government debt, local government debts and the fiscal risks statically and dynamically. On this basis, we obtain some conclusions:(1)in our country, the levels of explicit liabilities-to-asset ratio is appropriate, but the levels of contingent liabilities, comprehensive liabilities and fiscal risk in relatively high; (2)in the aspect of components, implicit and contingent liabilities are more than direct explicit liabilities;(3) in the aspects of subjects, local governments' fiscal risks are higher than the central government's;(4) in a dynamic perspective, government debts have large risks and non- Sustainability. The thesis also analyzes the moral hazard behavior and institutional public risk induced by government contingent liabilities except for the scale of the debts. Finally, we introduce some empirical evidences in some developed countries and some developing countries that how they control the fiscal risks and the scale of the government debts.Fiscal innovation and risk control. In the institution of market, government contingent liabilities (especially government guarantees) are an important and efficient means being used to fiscal support. If the government wants to improve the efficiency of this lever and avoid corresponding fiscal (public) risk at the same time, it must adopt fiscal innovations on institution, management and techniques. (1) The government must construct the institution to prevent the contingent liabilities from forming, it includes: completing Fenshuizhi fiscal institution, enhancing the local governments' abilities to pay off the debts; deepening the SOEs reform, building symmetric mechanism between risk and responsibly; promoting financial institution reform, dealing with bad assets in banks; improving the social security institution, paying the transitional costs step by step; reforming the circulative mechanism of food, digesting losses suspending in the financial reports; normalizing the channels by which local governments finances their debts, resolving debts risks by classification. (2) The governments should build management system to resolve the risks induced by contingent liabilities. It includes: improving the mechanism that the government provides guarantees; revealing relevant information on contingent liabilities; implementing budget management for contingent liabilities; apply financial derivatives to avoid contingent liabilities' risks; building reserved funds for relevant contingent liabilities. (3) The government and relevant public sector should search for the methods to detect and warn the contingent liabilities' risks. They includes: applying risk probability model, actuarial methods, econometric models, contingent claim analysis and etc. to quantify the contingent liabilities; trying to build index system of the detecting and warning fiscal risks at comprehensive debts caliber. This index system should include basic database, macro-variable indexes, micro-warning indexes, expenditure indexes and indexes reflecting governments' affordability.