Minos A. Zombanakis Professor of the International Financial System
The literature on external default has stressed the existence of the so-called debt-intolerance puzzle: developing nations tend to default at debt-to-GDP
ratios well bellow those of developed countries. The underestimation or plain omission of domestic debt may account for
a fraction of that puzzle. We calculate fiscal revenues coming from financial
repression using different methodologies
for the case of Venezuela, and look at their correspondence with comprehensive
measures of capital flight. In particular,
we add to the standard measure of capital
flight the over-invoicing of imports, rife
in periods of exchange controls. We find
that financial repression accounts for
public revenues similar to those of OECD
economies, in spite of the latter having
much higher domestic debt-to-GDP ratios.
We also find that financial repression and
capital flight are significantly higher in
years of exchange controls and interest rate caps. We interpret this as significant evidence suggesting a link
between domestic disequilibrium and a
weakening of the net foreign asset position via capital flight.
Reinhart, Carmen, and Miguel Angel Santos. "From Financial Repression to External Distress: The Case of Venezuela." HKS Faculty Research Working Paper Series RWP15-018, April 2015.