While debt flows may be more sensitive to a narrowing of the interest rate differential, equity flows may actually increase because they see in this a signal of lower inflation and better investment environment. This has been the experience of India leading some analysis to all this, the “Indian exceptionalism”. 58.
In advanced economies the restructuring of the public debt would have to involve a much larger number of financial assets and liabilities, including those of the domestic banking system vis-à-vis residents and non residents. It can be easily seen that there can hardly be anything “orderly” in such a process. Attempts to work on this issue should certainly not be discouraged.