Public domestic debt (which was a minor issue in the 1980s debt crisis in developing countries) is much larger now and data availability lags its external counterpart (particularly on ownership).

Box 1. Hidden debts: Unpleasant surprises that when revealed have undermined the credibility of existing safety nets and may set runs in motion.

_Central bank debt_ : To this day, even when the numbers are published, these are not included as part of _general government debt_ (i.e., Argentina’s short-term Lebacs). In the event of euro area exits, Target 2 balances (currently running at around 20%-40% of GDP for Greece, Italy, Portugal, and Spain) are _external_ central bank debt. _Unseen:_ In June 1997, the new Thai finance minister ‘discovered’ that the Bank of Thailand had already spent US$28 billion of US$30 billion of its international reserves in the course of forward market interventions to defend the baht.

_Non-securitized, floating debt (arrears):_ Unpaid bills to suppliers and, in more desperate cases (the Russian Federation 1998), unpaid pensions and wages to public sector employees.

_Misreporting and other off-balance sheet omissions:_ Greece-Goldman Sachs debt swaps: Greek dollar and yendenominated debt was swapped at historical euro exchange rates to cosmetically reduce the overall level of debt. _Debts to China:_ Even the most comprehensive databases on external debt, such as the World Bank’s _Debt Reporting System,_ did not fully capture liabilities of governments and SOEs in numerous low-income countries, over much of the 2000s.

_Offshore derivative operations of banks:_ These can leverage banks’ holdings of government debt (a significant hidden debt problem during the Mexican banking/peso crisis of 1994-1995). With Mexican bonds (Tesobonos) as collateral, Mexican banks took on short-term dollar debt, which was for the most part unhedged. As the value of the collateral sank, margin calls increased along with rollover risk.

_Implicit guarantees and moral hazard:_ _Private sector debt,_ especially external debt of banks (Diaz Alejandro, 1985) can overwhelm an otherwise healthy fiscal situation (Chile 1981, Iceland, Ireland, Spain, 2007-2008); corporate debt (Korea and Indonesia, 1997). Puerto Rico’s “appropriation debt.” Puerto Rico (PR) began issuing “Appropriation bonds” in 2000 indirectly through _government-owned entities_ and made repayment contingent upon the legislature’s appropriating funds for this purpose. These bonds are not counted as debt under the debt limit. Yet PR appropriation debt was, for practical purposes, guaranteed by the government and charged to its taxpayers.

**_Gambling for resurrection_** is well known in the literature on banking and <mark>denotes excessive risktaking by troubled banks.</mark> The management is aware of the solvency problem and may borrow (usually short-term and at high rates) to pay off depositors (Velasco (1987) stresses moral hazard), offer ever higher deposit rates to attract depositors (Rojas-Suarez 2002), and lend to short-term risky projects in the hope that the “gamble” will pay off.  It is difficult to document when these strategies have paid off and a crisis was avoided for individual banks.  At the aggregate sectoral level, many of the banking crises in the 100 discussed previously were

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