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Structuring and Restructuring Sovereign Debt: The Role of a Bankruptcy Regime

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Author Info
Patrick Bolton
Olivier Jeanne

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

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Length: 27 pages
Date of creation: 02 Aug 2007
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Handle: RePEc:imf:imfwpa:07/192

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Keywords: Sovereign debt ; Debt restructuring ; Bankruptcy ; Sovereign Debt Restructuring Mechanism ; Working Paper ;

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  1. Andrei Shleifer, 2003. "Will The Sovereign Debt Market Survive?," Harvard Institute of Economic Research Working Papers 2000, Harvard - Institute of Economic Research. [Downloadable!]
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  2. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-42, July. [Downloadable!] (restricted)
  3. Hart, O. & Tirole, J., 1990. "Vertical Integration And Market Foreclosure," Working papers 548, Massachusetts Institute of Technology (MIT), Department of Economics.
  4. Michael P. Dooley, 2000. "Can Output Losses Following International Financial Crises be Avoided?," NBER Working Papers 7531, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Ilya Segal, 1999. "Contracting With Externalities," The Quarterly Journal of Economics, MIT Press, vol. 114(2), pages 337-388, May. [Downloadable!] (restricted)
  6. Barry Eichengreen, 2003. "Restructuring Sovereign Debt," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 75-98, Fall. [Downloadable!] (restricted)
  7. Bolton, Patrick & Jeanne, Olivier, 2005. "Structuring and Restructuring Sovereign Debt: The Role of Seniority," CEPR Discussion Papers 4901, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  8. Bulow, Jeremy & Rogoff, Kenneth, 1989. "A Constant Recontracting Model of Sovereign Debt," Journal of Political Economy, University of Chicago Press, vol. 97(1), pages 155-78, February. [Downloadable!] (restricted)
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  9. 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. [Downloadable!] (restricted)
  10. 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. [Downloadable!] (restricted)
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  11. Dewatripont, M & Maskin, E, 1995. "Credit and Efficiency in Centralized and Decentralized Economies," Review of Economic Studies, Blackwell Publishing, vol. 62(4), pages 541-55, October. [Downloadable!] (restricted)
  12. Hart, Oliver & Moore, John, 1995. "Debt and Seniority: An Analysis of the Role of Hard Claims in Constraining Management," American Economic Review, American Economic Association, vol. 85(3), pages 567-85, June. [Downloadable!] (restricted)
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  13. Olivier Jeanne, 2004. "Debt Maturity and the International Financial Architecture," IMF Working Papers 04/137, International Monetary Fund. [Downloadable!]
  14. Bulow, Jeremy & Rogoff, Kenneth, 1991. "Sovereign Debt Repurchases: No Cure for Overhang," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1219-35, November. [Downloadable!] (restricted)
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  15. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February. [Downloadable!] (restricted)
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