The Study On External Debt Risk Prevention

Latin American debt crisis and European sovereign debt crisis are two important debt crises in the history of world economy. The two debt crises happened in developing countries and developed countries each, but both of them affected wide range as much as they can and had a great impact on the world economy, which scares us mostly. External debt security is an important aspect of economy security, rational utilization of foreign debt can promote the development of one’s economy, while the irrational raising of debt increases a country’s debt risk and lead to a debt crisis worse. Latin American debt crisis and European sovereign debt crisis are the best examples. Debt problems don’t appear to be harmful to the debtor’s own economy only; it also has a strong impact on the normal operation of the world economy and the world political situation as well. Under the new situation, the large global debt risk will exists for a long time, so the study of foreign debt risk prevention is more meaningful.This passage made a basic definition of the external debt under the consideration of research background and the existing research literature, and then divided the external debt risk into internal and external risk, total risk and structural risk from different perspective. The external risk include interest rate risk and exchange rate risk while the internal risk include credit risk and management risk; total risk is mainly scale risk and structural risk include financing structure, interest rate structure,currency structure and maturity structure. Then this paper summarizes the similarity of foreign debt risk between developed countries and developing countries by comparative analysis. There are three similar aspects: external risk caused by the international market change is difficult to avoid; poor management will expand the total external debt risk and structural risk; the economic development model will lead a potential risk. After that, comes the difference of the foreign debt risk found between developed and developing countries. We focus on the comparison of foreign debt scale, debt structure and the means to solve the problem of debt. It showed that the related debt ratios of developed countries are more higer than the developing countries, but developed countries have more advantages on its debt borrowing and can do better with the debt crisis than the developing countries. In the empirical part, we selected the some related data index of the developed countries and developing countries and build a logistic model by using SPSS statistical software. We found that the average external debt grace period, the proportion of short-term debt to total debt and the inflation is a warning sign for developing country while the yield to maturity on the bond and the inflation are effective warning sign for developed countries. Based on the analysis conclusion, the author thinks that both developing countries and developed countries should control the scale of debt, optimize the debt structure, and enhance the domestic economic; developing countries should adjust interest rate policy and exchange rate policy and internationalize the domestic currency, while developed countries should strengthen the supervision and fiscal adjustment, pay more attention to the real economy and strengthen the financial regulation.