Definition of External Debt

External debt is the debt that a state owes to external creditors. It is usually represented by different bonds or credit titles that are in the possession of individual savers, institutions financial institutions or companies of any kind that are regulated by a law foreign. In this way, the external debt It is distinguished from domestic debt, that is, from debt held by the same agents but in the territory governed by the law of the debtor state. It should also be noted that the debt that is issued may be affected by different laws, regardless of whether it is internal or external.

State and external debt

States need to finance themselves in order to meet their obligations. East financing can arise from various sources, such as monetary issuance, the collection of tax or finally the indebtedness; Certainly, each of these forms of financing has its own problems, so they must be properly evaluated. In the case of debt, it is issued under a certain legislation

, which can be the local one or that of a foreign country; This means that before a problem with the collection of the debt, the creditors will be able to make the claim in the country under whose legislation it has been issued.

The external debt It tends to be different from the internal one because in the second case it may be in the hands of official institutions, different organisms state. This circumstance means that it can be refinanced with a greater chance of success. On the other hand, the external debt must generally be fulfilled in the prescribed way if what it wants is to avoid a default and all the problems associated with this situation. It should be noted that the price of debt securities will vary depending on the risk of default as well as the proximity to that payment.

Threat to the future of a country

Today there is a clear debt problem in the central countries, a problem that will undoubtedly have some kind of repercussion in the future. It is for this circumstance that voices have already been raised that seek to put a stop to unnecessary spending by the states, without meaningful measures having been taken in this regard. Certainly, debt is an instrument that must be maintained carefully, or else it can lead to enormous difficulties, both for the debtor and the creditor. The best answer in this regard is to keep the finance public avoiding the deficit.

Issues in External Debt