By Josh Newell

WASHINGTON (MNI) – Advanced economies have taken on much more debt
than generally reported, and this can affect countries’ sovereign
positions, according to economist Carmen Reinhart said in a presentation
at the International Monetary Fund Friday.

In a panel discussion at the IMF, titled ‘Financial Crises: Causes,
Consequences, and Policy Responses’, Reinhart, a professor at the
Harvard University John F. Kennedy School of Government, said in
prepared remarks, “When you look at both private and public debt we are
indeed in uncharted waters.”

Her main reasoning was that “true debts are much higher than meets
the eye;” she warns of “hidden debt”, debt that is not necessarily
public debt but can be seen as a possible government liability.

“There is also the issue of domestic debt, household debt. If we
focus only on public debt, we are missing the boat.”

Generally speaking, “The financial crisis morphs into a sovereign
crisis because the government begins to take on private debt,” she said.

In the context of the European debt crisis, Reinhart said, “When I
look at the end game in many countries, I think of the bank debt in
places like Ireland and in places like Spain, and part of the solution
involves restructuring,” though she did hedge this by stating a default
is not unavoidable in these countries.

“My own expectation is that the restructurings do not end with

–Josh Newell is a reporter with Need to Know News in Washington

** MNI Washington Bureau: (202) 371-2121 **

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