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The role of the IMF in recent sovereign debt restructurings: Implications for the policy of lending into arrears

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Author Info

  • Javier Díaz-Cassou

    ()
    (Banco de España)

  • Aitor Erce-Domínguez

    ()
    (Banco de España)

  • Juan J. Vázquez-Zamora

    ()
    (Banco de España)

Abstract

This paper analyzes the role played by the IMF in eight recent sovereign debt restructurings from a comparative perspective: Argentina (2001-2005), the Dominican Republic (2004-2005), Ecuador (1999-2000), Pakistan (1998-2001), the Russian Federation (1998-2001), Serbia (2000-2004), Ukraine (1998-2000) and Uruguay (2004). Our objective is to identify the various dimensions of the IMF's potential involvement during those processes, and to extract some relevant policy implications to reform the Policy of Lending Into Arrears. We find that the IMF can potentially exert a substantial influence on sovereign debt restructurings by influencing countries' decision to restructure when the debt burden is deemed unsustainable, by providing official finance to substitute for a loss of access to international financial markets, by setting a medium-term domestic adjustment path through conditionality, by providing 'independent' information at a time of heightened uncertainty, and by providing incentives both to creditors and debtors. However, a lack of consistency has tended to characterize the role of the IMF in recent sovereign debt restructurings. In part, this reflects the flexibility with which the IMF has adapted its intervention to country-specific factors. However, we argue that this lack of consistency has tended to exacerbate the uncertainty and information asymmetries that are often associated with sovereign debt restructurings, and that a more systematic approach is needed.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/08/Fic/do0805e.pdf
File Function: First version, August 2008
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Bibliographic Info

Paper provided by Banco de Espa�a in its series Banco de Espa�a Occasional Papers with number 0805.

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Length: 37 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:bde:opaper:0805

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Keywords: IMF; sovereign debt; restructurings; default; solvency;

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References

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  1. Eichengreen, Barry & Portes, Richard, 1989. "Dealing with Debt: The 1930s and the 1980s," CEPR Discussion Papers, C.E.P.R. Discussion Papers 300, C.E.P.R. Discussion Papers.
  2. Bjoern Rother & Ivetta Hakobyan & Monica Baumgarten de Bolle, 2006. "The Level and Composition of Public Sector Debt in Emerging Market Crises," IMF Working Papers 06/186, International Monetary Fund.
  3. Abbigail J. Chiodo & Michael T. Owyang, 2002. "A case study of a currency crisis: the Russian default of 1998," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Nov, pages 7-18.
  4. Javier Díaz-Cassou & Aitor Erce-Domínguez & Juan J. Vázquez-Zamora, 2008. "Recent episodes of sovereign debt restructurings. A case-study approach," Banco de Espa�a Occasional Papers 0804, Banco de Espa�a.
  5. Niko Gobbin & Bruno Merlevede, 2000. "The Russian Crisis: A Debt Perspective," Post-Communist Economies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 12(2), pages 141-163.
  6. Federico Sturzenegger & Jeromin Zettelmeyer, 2007. "Creditors' Losses Versus Debt Relief: Results from a Decade of Sovereign Debt Crises," Journal of the European Economic Association, MIT Press, MIT Press, vol. 5(2-3), pages 343-351, 04-05.
  7. Harald Finger & Mauro Mecagni, 2007. "Sovereign Debt Restructuring and Debt Sustainability," IMF Occasional Papers 255, International Monetary Fund.
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Cited by:
  1. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 651-98, September.
  2. Aitor Erce Domiguez, 2010. "Debtor Discrimination During Sovereign Debt Restructurings," 2010 Meeting Papers, Society for Economic Dynamics 1324, Society for Economic Dynamics.
  3. Aitor Erce, 2012. "Selective sovereign defaults," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 127, Federal Reserve Bank of Dallas.
  4. Aitor Erce, 2013. "Sovereign debt crises: could an international court minimize them?," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 142, Federal Reserve Bank of Dallas.
  5. Erce, Aitor, 2014. "Banking on seniority: the IMF and the sovereign’s creditors," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 175, Federal Reserve Bank of Dallas.
  6. Javier Díaz-Cassou & Aitor Erce-Domínguez & Juan J. Vázquez-Zamora, 2008. "Recent episodes of sovereign debt restructurings. A case-study approach," Banco de Espa�a Occasional Papers 0804, Banco de Espa�a.

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