Spain Is In Debt Up To Its Eyeballs

Spain‘s debt with the world reached 1.4 billion dollars or 1.1 billion euros in 2013, making it the second most indebted country in the world after the United States, as recorded by the International Monetary Fund (IMF) in the fourth chapter of the new edition of its report ‘Global Economic Prospects‘.

The negative balance of 1.1 billion euros that includes net foreign assets of Spain is second only to the 4.5 billion euros in the United States and is quite above the third country in debt, Brazil with 750,000 million euros.

However, when compared to the proportion of these assets represents in GDP, in the case of Spain the percentage reaching 103.1%, while the United States is at 34% and Brazil at 33.4%.

According to the statistics of the Fund, Spain‘s debt with foreign creditors is much higher than that recorded in 2006, when it stood at 862,000 million dollars, which then amounted to 69.7% of GDP.

By contrast, the largest creditors in the world in 2013 were Japan and China with positive net foreign assets of 3.06 and 1.69 billion dollars or 2.42 billion euros and 1.34, respectively.

Despite this debt, the current account balance of Spain has declined in recent months, since 2013 ended with a surplus in contrast to the deficit of 111.000 billion in 2006, the second largest in the world.

Moreover, the IMF believes that, despite progress in reducing current account imbalances, there remains a lot of work to reduce deficits and current “excessive” account surpluses in several advanced and emerging economies.

The institution led by Christine Lagarde stressed that global imbalances over a third between 2006 and 2013, which has now led to a decrease in the concentration of imbalances and systemic risks were reduced.

This has coincided with a reduction in major deficits in some economies that are still under stress and others with surpluses like China and Japan. However, she warns that the surpluses in the core countries of Europe have remained important, and current account balances have deteriorated in some emerging markets.

The background information notes that, in large measure, the adjustment of the imbalances of flows has been driven by weak demand in countries with high deficits, which has been accompanied by an increase in unemployment in these countries.

The adjustments have been aided by differences in growth due to faster recovery in emerging markets and commodity exporters. However, there has been almost no correct redirection of spending.

The IMF expects the reduction of imbalances to be durable, because much of the production losses are structural, even when the medium-term deficit economies reduce their output gaps. However, it warns that there may be a risk for imbalances to grow again as economies recover completely.

In this context, the Fund notes that while the current situation points to a decrease in external vulnerabilities in the coming years, some economies remain at risk.

In 2006, account balances and net foreign asset balances in a number of economies approached or exceeded thresholds associated with previous crises. Since then, many of these economies have become less vulnerable, and the most recent projections indicate that external vulnerabilities will continue to fall in the coming years.

“However, although systemic risks posed by global imbalances have declined, there is still scope for reducing deficits and excessive account surpluses in several advanced and emerging economies,” the report says.

In this context, the Fund argues that policy efforts in search of a global rebalancing remains “a priority” and believes that a reduction in net foreign liabilities in debtor economies requires improvements in account balances and more solid growth.

“A stronger external demand and increased expenditure switching can contribute to both tasks. It Would be useful to take steps to achieve a stronger and more balanced growth in the major economies, including those with surpluses that have leeway to respond with policies.”

Luis R. Miranda is the Founder and Editor of The Real Agenda. His 16 years of experience in Journalism include television, radio, print and Internet news. Luis obtained his Journalism degree from Universidad Latina de Costa Rica, where he graduated in Mass Media Communication in 1998. He also holds a Bachelor’s Degree in Broadcasting from Montclair State University in New Jersey. Among his most distinguished interviews are: Costa Rican President Jose Maria Figueres and James Hansen from NASA Space Goddard Institute. Read more about Luis.