In another question it was asked what it means to a country if it has a high debt. I'd like to know whether there are there examples of a country paying back high (100%+ Debt to GDP ratio) debt?

I remember that Romania under Ceaușescu paid back their debts (of 13 billion dollars). I have no info on GDP that time (late 70's), but Romania was practically devastated by 1989 when he was ousted and killed. The shops were empty, exports were the only working part of the economy, and it was impossible to get anything from abroad.

Is there any healthy example where a country could pay back their debts? Of course without having very serious problems.


  1. If so: does that way work in all cases? Is it better than just going bankrupt?

  2. If not: is there any point in paying back a single coin for a country which has serious debt issues?

  • The UK was in great debt twice during the last century - 150% of GDP after WW1 and 250% after WW2. The WW2 debt was helped out by the Marshall Plan, and the WW1 by defaulting on much of it. Feb 15, 2013 at 15:51

2 Answers 2


Several examples exist of countries paying back large debts - but perhaps the best recent example is that of Latvia. During the economic downturn in 2008, Latvia was constrained by its currency peg to the Euro to pay off its debts at full value (meaning not by simply devaluing its currency). As a result, it took a hit of nearly 18% to its GDP - that's nearly a crippling 1/5 of its economy, gone.

It undertook this hit willingly, in the hopes of joining the Euro and the EU. Come 1/1/14, it is scheduled to do so.

Typically, large debts are paid by devaluing the currency. While this has the short term effect of driving off investors, in the long run, it is the least "bad" way to do it. This Planet Money podcast explains the legal travails that Argentina faced when it chose to default on its debt, and also argues why Greece doesn't really have an Argentinian option. That said, the actual devaluation is widely credited with getting Argentina back on track. Brazil had a similiar experience.

  • Also, MOST countries simply seem to have their debt forgiven.
    – user4012
    Feb 15, 2013 at 14:30
  • Latvia is a good example for countries that fit a similar economic profile to Latvia, but is a poor example to countries of other sizes and debt structures. As an example: the US could never pursue overly aggressive devaluation (debasing) to pay off its debt for a few reasons, here's one --> the USD is the world reserve currency, and the US is parasitically reliant upon that status to continue borrowing at such low rates. If the US debased the USD to pay off the debt, it would lose world reserve status, and we'd be screwed.
    – csuwldcat
    Oct 3, 2013 at 5:40
  • @CsBalazsHungary Debt at the state level simply does not work in the same way, thinking that it does is an endless source of confusion and bad policy. In that case, one difference is that even if you avoid default or devaluation, inflation and growth will over time make the debt smaller and smaller relative to the GDP and tax income. Paying back debt (i.e. without rolling over and creating new debt all the time) is never necessary and seldom a good idea, even if reducing it in relative terms is.
    – Relaxed
    Jul 6, 2017 at 19:16

The answer to this question is that it depends on whether the debt is public or private, whether the debt is locally funded or from foreign sources, and whether there is capacity to service the debt. The short answer is that small countries that can devalues it currency and can make quality exports, while converting external debt into foreign investment, without having assets stripped and its foreign currency reserves raided by George Soros, have been known to recover from very high debt levels, almost no countries repay their national debt, hoping that economic growth and inflation keeps the ratio of debt/GDP at manageable levels. Recently, with over 30 years of low inflation, the major economies have resorted to suppression of interest rates, by inflating the money supply, with little success.

From the answers above, it seems there is little understanding of the role of debt in the modern international monetary system, and within all developed economies. The history is long and complicated, so I refer anyone to go to youtube and find the excellent series "The Hidden Secrets of Money" at https://www.youtube.com/watch?v=DyV0OfU3FU&list=PLE88E9ICdiphYjJkeeLL2O09eJoC8r7Dc

In an economy like the US, with the current monetary system, it is impossible to repay all debt, without leading to economic collapse, or is it even desirable in theory. First there is a difference between government debt and private debt, and they play very different roles in the economy. Here is the reason, and it may take some time to digest, almost every dollar of money circulating in the economy, is debt that has be loaned out by a bank, backed by the promise to repay, including interest. You might say, where does the money come from, who has that much money to lend out? The answer is nobody - when a bank agrees to lend you money, on the basis of your IOU, it creates money out thin air, and puts the figure in your account. Really! While the banknotes themselves are printed in the mint, they have no intrinsic value, so the mint can print as many dollars as the banks create, and all except a tiny fraction is someone's debt. Now, this sounds crazy, but there are rules. When you earn money to repay your loan the money to repay the bank - disappears back into thin air. The interest you pay goes into the bank to pay wages and expenses, and a small amount goes to profits. But think, if 1 borrow $10000, spend it, putting $10000 into circulation, and I pay back $10000 that disappears, where does the extra money come from to pay the (say) $500 dollars interest - that's right someone else has to have borrowed at least $500 in the meantime. That means debt must always increase for there to be enough money for previous debts to be repaid, as well as interest. The only way this is possible is through wealth creation through economic growth, companies rise in value, assets rise in value, and as long as this process continues it all works. By adjusting interest rates, the expanding money supply can lead to inflation, in which assets increase in value why money and debt decreases in value, but it is akin to theft from those holding savings to those holding assets, and it becomes very unpopular to voters and investors. But now with low inflation, low interest rates, and high debt, what if interest rates rise, repayments increase, less money is in circulation for growth, and people stop borrowing, or being unable to pay. This where the banks really do hold the risk, because for every loan unpaid, instead of making profit from interest, they lose the entire amount, which still has to disappear from their reserves.

Back in 2000, federal regulations sought to increase the level of home ownership, mainly in low income minority households. Loans were made at cheap rates, corners were cut, and strict credit assessments of borrowers became politically incorrect. As interest rates began to rise, many borrowers could not pay, and as the defaulted on their loans, the lenders had to take 100% loss and were left with houses no one wanted, and an enormous quantity of money, many trillions of dollars, literally disappeared into nowhere. Unless the Federal Reserve, which is allowed to write checks to any value, backed with government bonds, which are your children's promise to repay, trillions of dollars were pumped into the banking system to prevent complete collapse. The debt continued to rise, interest rates were held near zero, and it is a grand experiment to see if economic growth under Trump, can bring the economy back to normal growth. Some people believe that it is impossible, that the US dollar and most other world currencies will collapse in the near future, which is far worse than it sounds, since the British Pound, playing the same role as the US dollar today, underwent the same collapse after WW1 and again after WW2, when the Breton-Woods agreement to make the US dollar the world reserve currency in 1943, was agreed, with the World Bank and IMF to oversee the system. The IMF already has the next reserve currency in waiting, called a Special Drawing Right or SDR, it is not money, but a promise from the G20 nations to contribute a weighted combination of US dollars, UK pounds, Euros, Yen and Chinese Yuan to when and SDR is 'cashed' by countries like Ukraine, who have already received IMF loans, in SDR's rather than dollars, much harder for the corrupt oligarchs steal, leaving the people holding the bag.

  • 1
    This does not answer the question at hand. It's also rather poorly written - I can't figure out any question it might answer.
    – MSalters
    Dec 20, 2017 at 11:10

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