this framework, taxes must eventually cover both government primary current spending (i.e., noninterest spending unrelated to public investments) _and_ the subsidy on public investment needed for projects where the _economic_ rate of return (ROR) exceeds the interest rate, but the _financial_ ROR does not. In particular, the subsidy for such projects should not be financed by additional borrowing, which might put public debt on an unsustainable course. The implicit assumptions are that there is no waste in government current spending, that borrowing is only for worthwhile public investment projects (economic ROR exceeds the interest rate) and that any investment subsidy required (difference between the interest rate and the net financial ROR) comes strictly from taxation. Meeting these conditions is likely to require higher public saving. These ideas are applicable to the concept of ‘fiscal space’ that has been raised in the context of some MACs.

Table 1 lists the top ten MACs—India, China, Brazil, Mexico, Korea, Turkey, Indonesia, Russia, Argentina and Poland—in terms of public debt (external plus domestic). In 2002, their combined public debt was $2.2 trillion or more than two-thirds of total MAC public debt. These countries also accounted for about $1.4 trillion in external debt—that is, public plus private debt, held by external creditors. When public debt is expressed as a ratio of GDP, the top eleven MAC debtors in 2002 were Lebanon, Jamaica, Argentina, Uruguay, Jordan, Turkey, India, Pakistan, Morocco, the Philippines and Indonesia, with ratios ranging between 90 and 180 percent.<sup>5</sup> All but three countries had higher public debt-to-GDP ratios than a decade earlier in 1992, the year by which the Brady Plan resolution of the 1980s debt crisis had been implemented for the major participating countries. In the three exceptions, Jamaica, Jordan and Morocco, the public debt-toGDP ratio was exceptionally high in 1992 and had come down only modestly by 2002. Interestingly, of the 17 countries in Table 1, China was the only one not to experience a debt or balance-of-payments crisis during the 1980s or later.<sup>6</sup> The paper pays special attention to many of the countries listed in the table.

**—** **<u>Table 1. Sovereign Debt Big MACs and Debt Majors</u>**

||**Total P**|**ublic Debt ($ Billions)**||**Public Debt**|**to GDP (%)**|
|---|---|---|---|---|---|
||**1992**|**2002**||**1992**|**2002**|
|India|156|380|Lebanon|70|177|
|China|68|366|Jamaica|181|149|
|Brazil|165|284|Argentina|26|126|
|México|118|280|Uruguay|48|109|
|Korea|61|232<sup>1/</sup>|Jordan|167|100|
|Turkey|65|173|Turkey|40|94|
|Indonesia|56|149|India|74|81|
|Russia|12|118|Pakistan|81|90|
|Argentina|59|117|Morocco|102|90|
|Poland|44|72|Philippines|81|89|
||||Indonesia|40|86|

1/Data for 2001. _Note_ : Public debt is defined to be public and publicly guaranteed external debt plus domestic public debt. _Source_ : Global Development Finance (World Bank), World Economic Outlook (IMF) and staff estimates.

5 There are varying definitions of the numerator and the denominator across countries. Turkey’s debt ratios are reported as a share of GNP, and Brazil and Turkey both report public debt net of central bank assets. 6 Lebanon remains an enigma. In spite of being an outlier in its public debt-to-GDP ratio, it did not suffer a debt default or financial system crisis. But its exchange rate collapsed during 1986-87 and 1992 as a result of domestic credit-financed expansions in government spending which depleted reserves, akin to a first generation crisis (see Box 3 below). It also benefited from a pubic debt reprofiling under the auspices of the _Paris II Conference_ held in November 2002 (“One-Year Progress After Paris II”, Special Report, Ministry of Finance, Republic of Lebanon, December 2003.) 4