Public debt sustainability in the northern countries of Latin America

An analysis of public debt indicators in eight northern countries of
Latin America reveals that Nicaragua and Honduras are the most
vulnerable; Panama, the Dominican Republic, Costa Rica, and El Salvador
are moderately vulnerable; while Mexico and Guatemala have debt levels
that are not considered dangerous. Nonetheless, a subsequent review of
four indicators of fiscal sustainability shows only Mexico to be well
positioned under all criteria; Costa Rica and Guatemala display a number
of minor problems, while various special circumstances explain the
favourable results obtained by Nicaragua and the Dominican Republic;
and El Salvador, Honduras and Panama will be unable to sustain their
2004 fiscal policy for very long. Lastly, analysis of the sensitivity of the
debt to a sudden stop in foreign capital inflows suggests the need for a
cautious attitude towards the future trend of the public debt in the face of
rising international interest rates.