Tretiak А.О., PhD Buriakovskiy V.V., Kostiv V.K.

Dnipropetrovsk National University named after Oles Honchar

THE PROBLEM OF THE EXTERNAL STATE DEBT AND TRADITIONAL APPROACHES OF ITS REGULATION

The state debt is the general sum of the state’s liabilities, which consists of all produced and unpaid promissory notes of the state, together with promissory notes of the state, which enter into the action as a result of the given out guarantees after loans or notes, that arise up on the basis of the legislation or an agreement. There are external and internal state debts.

The external state debt is:

1) the liabilities which arise up in foreign currency;

2) the state debt after the unpaid external loans and after the unpaid interest as they are used to. It consists of the liabilities to the international and state banks, governments, private foreign banks. There are general (or accumulated) and current external debts.

Usually there are two dangers in the external state debt: the bankruptcy of the state and the danger of the tax load’s transferring to future generations. In case, when budgetary sources on the debt retirement are not enough, the state can declare a refuse to pay percents and pay off the liabilities to the external and internal investors, that is to declare sovereign default. It is the state’s bankruptcy. The second danger is made by the displacement of private investments because of the state loans in a long-term prospect, which will lead to the reduction of the nation’s production potential and, as a result, to the increase of the tax load to future generations.

The mechanisms of the external state debt overcoming relatively can be divided into two types: agreed charts (when unique decision is needed to be accepted by the creditors) and market charts (when the every creditor appears separately from the others).

There are such charts of the external state debt restructuring as:

1) «writing off the external debt». If the liabilities of the state exceed its expected solvency, the external state debt comes forward as the proportional tax because the additional profits of the state are given not to citizens, but creditors. It makes worse the economic position of the state at least in two aspects. At first, the government is less interested to hold the hard economic policy because the basic part of the dividends will be paid to creditors. Secondly, the surplus amount of the debts taken by the state negatively reflects on the citizens’ welfare because of the tax load’s increase and the investment activity’s decline. At small amount of loans the expected amount of payments for the debt coincides with the amount of liabilities, so it is expected that the debt will be paid completely. However, from the certain moment the debt’s amount begins to exceed the amount of the expected payments for it. Growing probability of the default results to the fall of the debt’s cost. If there are no transaction expenses, this value can be considered as the relative market price of the debt. With the following increase of the loans’ amount, the total cost of the debt goes down together with the market price. The negative influence which makes the surplus tax load becomes so strong, that the writing off or restructuring of the debt’s part is necessary;

2) «debt buyback or debt repurchase». Some state-debtors have considerable amount of the gold-currency reserves or can augment them quickly enough by the stimulation of the export industries. At that time the debts of these states in the market bargain with a greater discount, that means a danger relatively to borrower’s solvency. In such situation it could be allowed the borrower to buy independently one’s debts back in the opened market. It would allow to shorten the general amount of the external state debt on the market conditions without acceptance of some concerted decisions by creditors;

3) «the debt security». The mechanism of the sovereign debt’s call buying is limited not only by the creditors’ position but also by the amount of the currency reserves accessible to the state. This limitation can be overcome by the debt security, for example, the exchange of the debts on the bonds. Such exchange is held both directly, when the old liabilities are exchanged at once on new, and mediated, when money, attracted by the emission, head for paying already existing debts. If the new securities bargain in the market with the less discount, such operation will lead to the reduction of the debt’s general amount;

4) «debt-for-equity swap». One of the most known market charts of the external state debt’s restructuring is a grant to creditors of the right of the debts’ sale with a discount in the national currency, by which in the result the shares of the national companies can be bought. The direct exchange of the debts on the shares of the companies, which are in a public domain, is more useful. Such exchange allows to work out two problems at the same time – to decrease the external state debt and provide a cash inflow in the real sector of economy;

5) «debt commodity swap» is the liabilities’ redemption in the form of receipt by creditors of the right on the realization of the domestic commodity at the certain price, a part of which returns to the debtor, the other (conditioned) part remains for a creditor on the account of redemption of the proposed requirements;

6) «debt-for-local currency swap» is the issue bonds with a face value in the domestic currency by the central bank in the exchange on the external debt liabilities. It means that due to application of this chart there is the change of the state’s external creditor on the internal one;

7) «debt-for-nature swap» is the variant of the facilitation of the state’s debt load due to the realization of the global ecological services to the world community. Application of the chart «debt-for-nature swap» can be carried out only with the official creditors, because commercial banks and companies don’t have the potential for the sponsorship of the ecological projects on the irretrievable basis.

Any program of the external state’s debt restrurcturing needs the proper calculations relatively every certain case. Thus the analysis of the possible variants must take into account not only economic, but also political, consequences of any other actions relatively the sovereign debt.