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Do We Need the IMF to Resolve a Crisis? Lessons from Past Episodes of Debt Restructuring

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Author Info
Philipp Maier

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Abstract

This study investigate how debt restructurings have evolved over the decades. Debtors and creditors have a long history of engaging an outsider - a "third party", such as the IMF - to organise and facilitate debt restructurings. As we show, the importance of these "third parties" has grown over time. At the same time, the financial environment has evolved rapidly, and financial markets have become more liquid and better able to spread risk in recent decades. In today's economic environment, the financial system of many advanced countries is better isolated from the negative consequences of a lengthy restructuring process. Consequently, from the perspective of creditor countries, the fact that "third parties" can facilitate and shorten the restructuring process has become less valuable. That said, emerging economies still benefit from involving a "third party", as this might help to overcome coordination problems among creditors and signal that the local authorities are effectively dealing with the crisis, which might help to restore confidence. This holds all the more since creditors have better access to litigation nowadays than during earlier episodes of debt restructurings.

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Paper provided by Bank of Canada in its series Working Papers with number 07-10.

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Length: 25 pages
Date of creation: 2007
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Handle: RePEc:bca:bocawp:07-10

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Related research
Keywords: Financial stability; International topics;

Find related papers by JEL classification:
N1 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations
N2 - Economic History - - Financial Markets and Institutions
E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
F3 - International Economics - - International Finance

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References listed on IDEAS
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  16. Yunyong Thaicharoen & Törbjörn I. Becker & Anthony J. Richards, 2001. "Bond Restructuring and Moral Hazard: Are Collective Action Clauses Costly?," IMF Working Papers 01/92, International Monetary Fund. [Downloadable!]
    Other versions:
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