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Structuring and Restructuring Sovereign Debt

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  • Patrick Bolton
  • Olivier Jeanne

Abstract

In an environment characterized by weak contractual enforcement, sovereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure ex post. We show however, that competition for repayment among lenders may result in a sovereign debt that is excessively difficult to restructure in equilibrium. This inefficiency may be alleviated by a suitably designed bankruptcy regime that facilitates debt restructuring.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/192.

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Length: 27
Date of creation: 01 Aug 2007
Date of revision:
Handle: RePEc:imf:imfwpa:07/192

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Keywords: Sovereign debt; Debt restructuring; Bankruptcy; debt structure; sovereign debt restructuring; debt renegotiations; debt crisis; repayments; debt crises; sovereign debt crisis; sovereign bond; debt structures; financial crises; short-term debt; sovereign debt crises; sovereign defaults; debt obligations; sovereign borrowers; debt exchange; international debt; private debt; debt maturity; debt market; domestic debt; resource allocation; financial distress; debt defaults; debt contracts; bad debt; repurchases; sovereign bonds; debt default; international financial crises;

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References

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  1. Barry Eichengreen, 2003. "Restructuring Sovereign Debt," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 75-98, Fall.
  2. Jeromin Zettelmeyer & Kenneth Rogoff, 2002. "Bankruptcy Procedures for Sovereigns," IMF Working Papers 02/133, International Monetary Fund.
  3. Bolton, Patrick & Jeanne, Olivier, 2005. "Structuring and Restructuring Sovereign Debt: The Role of Seniority," CEPR Discussion Papers 4901, C.E.P.R. Discussion Papers.
  4. Jeremy Bulow & Kenneth Rogoff, 1989. "Sovereign Debt Repurchases: No Cure for Overhang," NBER Working Papers 2850, National Bureau of Economic Research, Inc.
  5. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May.
  6. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
  7. Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
  8. Bolton, Patrick & Scharfstein, David S, 1996. "Optimal Debt Structure and the Number of Creditors," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 1-25, February.
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Citations

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Cited by:
  1. Patrick Bolton & Olivier Jeanne, 2011. "Sovereign Default Risk and Bank Fragility in Financially Integrated Economies," IMF Economic Review, Palgrave Macmillan, vol. 59(2), pages 162-194, June.
  2. Yan Bai & Jing Zhang, 2009. "Duration of Sovereign Debt Renegotiation," Working Papers 593, Research Seminar in International Economics, University of Michigan.
  3. Andrew Ang & Francis A. Longstaff, 2011. "Systemic Sovereign Credit Risk: Lessons from the U.S. and Europe," NBER Working Papers 16982, National Bureau of Economic Research, Inc.
  4. Olivier Jeanne, 2004. "Debt Maturity and the International Financial Architecture," IMF Working Papers 04/137, International Monetary Fund.
  5. Drelichman, Mauricio & Voth, Hans-Joachim, 2011. "Risk Sharing with the Monarch: Contigent Debt and Excusable Defaults in the Age of Philip II, 1556-1598," CEPR Discussion Papers 8492, C.E.P.R. Discussion Papers.
  6. Bernardo Guimaraes, 2011. "Sovereign default: which shocks matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 553-576, October.
  7. Hallak, Issam, 2009. "Renegotiation and the pricing structure of sovereign bank loans: Empirical evidence," Journal of Financial Stability, Elsevier, vol. 5(1), pages 89-103, January.
  8. Aitor Erce, 2013. "Sovereign debt crises: could an international court minimize them?," Globalization and Monetary Policy Institute Working Paper 142, Federal Reserve Bank of Dallas.
  9. Brown, Martin & Lane, Philip R., 2011. "Debt overhang in emerging Europe ?," Policy Research Working Paper Series 5784, The World Bank.

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