The meager growth of the late 1990s and early 2000s, plus the accumulation of large current account deficits during the 1990s, caused the region to begin the new century with relatively high levels of debt-to-GDP. For example, at the end of 2002 Brazil’s government debt reached 80% of GDP while its external debt was close to 55% of GDP. In every other country in Latin America – with the exception of Chile –, the debt of the general government exceeded 40% of GDP. Moreover, large current account deficits persisted throughout the region. Take the year 2002, when Mexico and Peru – as well as Bolivia and Costa Rica – had accumulated 5 years of current account deficits of over 2% of GDP. 1 Doubts about the sustainability of national debts across the region fueled an academic debate as to identifying the highest level of debt that could be tolerated. In a 2003 paper by Carmen Reinhart, Miguel Savastano and Kenneth Rogoff – which has been part of a successful research program on the history of debt crises –, the authors examined the history of defaults around the world, and concluded that relatively low levels of debt-to-GDP were enough to trigger credit restructuring events. 2 In particular, the paper found that several countries in the region had debt levels above the limits of what could be deemed “tolerable”. The authors also provided evidence of how countries – in Latin America and elsewhere – have historically used deleveraging to regain a sustainable path for their external debt.
Once these exercises are complete, we will analyse the feedback we have received and use it to inform our final decision, which will be announced in December. If a final decision is made to move to polymer, we will also use the opportunity to introduce notes which are somewhat smaller than the current series. These will be easier for both the public and the cash industry to handle and will generate further financial benefits in terms of lower production and storage costs. In moving to smaller notes, we will retain the present tiering of denominations by size, which is of particular benefit to the visually impaired. I would now like to invite any questions that you may have. I’ll be joined in addressing these by the Bank’s Chief Cashier and Executive Director for Banking Services Chris Salmon, and the Head of our Notes Division Victoria Cleland. 2  BIS central bankers’ speeches