financial markets, larger private corporations can borrow internationally to offset crowding-out by government domestic debt.<sup>39</sup> However, only the best private companies can borrow offshore, or tap the growth in domestic capital markets.

Crowding-out from government domestic debt may thus fall heavily on borrowers that are less well-known and cannot borrow internationally or access domestic capital markets. Governments thus need to consider the potential implications of their decisions to borrow externally or internally on the burden of crowding-out.

The burden of crowding-out could be eased by improving the attractiveness of SME and rural borrowers to lenders, although this is not a simple task. First, better information on SMEs and rural borrowers, through improvements in credit bureaus, can make such lending more attractive. Credit information is already being used by banks in developing countries to expand consumer credit substantially. Of course, in the shortrun, the development of credit information has made consumer lending more attractive than lending to SME and rural businesses, reducing their access.<sup>40</sup> And applying these techniques to SMEs and rural lending is more complex than applying them to consumer lending. Such businesses are _sui generis_ and the required information on what exactly they are doing is more complex than simply looking at a consumer’s assets, life style and history of debt repayment. Second, improvements in the titling of assets and collateral and in execution of collateral can make SME and rural lending more attractive. Finally, as such bank lending becomes more of a homogeneous product, it may be possible to securitize such loans, as is occurring with housing loans, or for micro-credit lenders to issue bonds (e.g., India). This would effectively open up the capital market to such borrowers as a group.

- 5.2 Changes in Macroeconomic Risk and Burdens

Recent discussions of the macroeconomic risks of government debt start, not surprisingly, with the numerous macroeconomic crises that occurred after the Mexican crisis that began at the end of 1994.<sup>41</sup> The recent discussion includes:

- Concerns about the magnitude of the debt relative to GDP (“Debt Intolerance”— see, for example, IMF, 2003; Gill and Pinto, 2005; Borensztein, Levy-Yeyati, and U. Panizza, 2006; and Reinhart, Rogoff, and Savastano, 2003, which focuses on foreign debt),

- The role of borrowing in foreign currency in the risk of debt (“Original Sin”—see, for example, Eichengreen and Hausman, 2004), and

- The disruptive impact of sharp contractions of international capital flows (“Sudden Stops”—see for example, Calvo, 1998; Calvo and Reinhart, 2000; and Calvo, Izquierdo, and Fernando-Mejía, 2004).

> 39 It remains true that the credit rating agencies generally rate emerging market companies’ bonds and borrowings markets at least one grade below than their country’s sovereign ratings. This rating differential tends to mean private borrowers face higher interest rates and shorter maturities than their governments. 40 Individuals can, of course, use consumer loans to finance their SME businesses, so the crowding-out problem from consumer credit may be less than it appears.

> 41 A whole set of earlier crises took place in the early 1990s and generated their own analysis.

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