Publication

This paper argues that whether government borrowing is a good investment or a way to avoid hard choices depends on how the capital is deployed. Using new long-term debt to build highways and power plants that will contribute to rapid growth and exports might be a terrific idea. The future income should more than cover the payments and the country is better off for having borrowed. Yet if the loan capital is merely used to avoid laying off excess government workers or to subsidize failing state-owned companies, new borrowing just delays tough decisions and sows the seeds of debt stress.