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Sovereign Bond Restructuring

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Author Info

  • Kenneth Kletzer

Abstract

This paper compares the restructuring of sovereign bonds with and without collective action clauses. One conclusion is that collective action clauses can allow efficient debt renegotiation in a formal model of sovereign debt renegotiation while unanimity rules offer incentives for opportunistic behavior by bondholders that leads to inefficient outcomes. With collective action clauses, the mutual gains from renegotiation can be internalized by bondholders so that the holders of each bond issue have incentives to participate in a collective debt restructuring. The analysis abstracts from transactions costs, and the last conclusion might well be sensitive to renegotiation and coordination costs.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/134.

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Length: 25
Date of creation: 01 Jun 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/134

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Related research

Keywords: Sovereign debt; Collective action clauses; Bonds; Debt restructuring; bond; bondholders; debt renegotiation; bondholder; bond restructuring; repayments; debt renegotiations; sovereign bonds; present value; sovereign bond; bond issues; bond issue; sovereign debt renegotiation; international financial architecture; sovereign debt restructuring; discount rate; liquidity crises; bond spreads; debt contracts; bond contracts; debt problems; debt crises; bond covenants; old bonds; moral hazard; sovereign debtor; international lending; debt reduction; currency crises; debt overhang; financial markets; brady bonds; corporate bond; debt obligations; sovereign debt crises; international financial markets; net present value; bond swap; financial stability; debt obligation; debt burden; sovereign borrower; discount rates; market for bonds; sovereign debtors; debt contract; individual bondholders; debtor country; individual bondholder; bond funds; secondary market for bonds; debt dynamics; bond maturities; government debt; debtor countries; dollar bonds; simple bond; corporate bonds; outstanding bonds; sovereign debt renegotiations;

References

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  1. Willem H. Buiter & Anne Sibert, 1999. "UDROP: a small contribution to the international financial architecture," LSE Research Online Documents on Economics 20224, London School of Economics and Political Science, LSE Library.
  2. Wells, Robin, 1993. "Tolerance of Arrearages: How IMF Loan Policy Can Effect Debt Reduction," American Economic Review, American Economic Association, vol. 83(3), pages 621-33, June.
  3. Marcus Miller & Joseph Stiglitz, 1999. "Bankruptcy Protection Against Macroeconomics Shocks: The case for a 'super Chapter 11'," CSGR Hot Topics: Research on Current Issues 08, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
  4. Chui, Michael & Gai, Prasanna & Haldane, Andrew G., 2002. "Sovereign liquidity crises: Analytics and implications for public policy," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 519-546, March.
  5. Törbjörn I. Becker & Anthony J. Richards & Yunyong Thaicharoen, 2001. "Bond Restructuring and Moral Hazard," IMF Working Papers 01/92, International Monetary Fund.
  6. Thomas, Jonathan & Worrall, Tim, 1990. "Income fluctuation and asymmetric information: An example of a repeated principal-agent problem," Journal of Economic Theory, Elsevier, vol. 51(2), pages 367-390, August.
  7. Jeremy I. Bulow & Kenneth Rogoff, 1987. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
  8. Atkeson, Andrew, 1991. "International Lending with Moral Hazard and Risk of Repudiation," Econometrica, Econometric Society, vol. 59(4), pages 1069-89, July.
  9. Cole, Harold L. & Kehoe, Patrick J., 1995. "The role of institutions in reputation models of sovereign debt," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 45-64, February.
  10. Buiter, Willem H & Sibert, Anne, 1999. "UDROP: A Small Contribution to the New International Financial Architecture," CEPR Discussion Papers 2138, C.E.P.R. Discussion Papers.
  11. Fernandez, Raquel & Rosenthal, Robert W, 1990. "Strategic Models of Sovereign-Debt Renegotiations," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 331-49, July.
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