Persistent gaps and default traps

We show how vicious circles in countries' credit histories arise in a model where output persistence is coupled with asymmetric information about output shocks. In such an environment, default signals the borrower's vulnerability to adverse shocks and creates a pessimistic growth outlook. This translates into higher interest spreads and debt servicing costs relative to income, raising the cost of future repayments, thereby creating “default traps”. We build a long and broad cross-country dataset to show the existence of a history-dependent “default premium” and of significant effects of output persistence on sovereign creditworthiness, consistent with the model's predictions

Post-neoliberalism in Latin America: rebuilding and reclaiming the state after crisis

The idea that states should take on an enhanced role in the pursuit of development is once again becoming increasingly pronounced in the global South.In Latin America, the ‘return of the state’ is associated with neostructuralism or post-neoliberalism and the rise of the New Left. Post-neoliberal projects of governance seek to retain elements of the previous export-led growthmodel whilst introducing new mechanisms for social inclusion and welfare.In addition to being a project of growth based on exports and expanded social spending, post-neoliberalism has a distinctive political character. This article explores the pillars of the new governance project, emphasizing the citizenship claims associated with it, along with some of the tensions that arise from export-dependent growth, budget limitations, a weak tax base and the difficulties of managing enhanced social expectations. In making their argument, the authors draw on the examples of Bolivia, Ecuador and Argentina