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Sovereign Default, Private Sector Creditors and the IFIs

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Author Info
Emine Boz

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Abstract

This paper builds a model of a sovereign borrower that has access to credit from private sector creditors and an IFI. Private sector creditors and the IFI offer different debt contracts that are modelled based on the institutional frameworks of these two types of debt. We analyze the decisions of a sovereign on how to allocate its borrowing needs between these two types of creditors, and when to default on its debt to the private sector creditor. The numerical analysis shows that, consistent with the data; the model predicts countercyclical IFI debt along with procyclical commercial debt flows, also matching other features of the data such as frequency of IFI borrowing and mean IFI debt stock.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/46.

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Length: 27 pages
Date of creation: 18 Mar 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/46

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Related research
Keywords: Sovereign debt ; Emerging markets ; Borrowing ; External debt ; Borrowed resources ; Private sector ; International financial system ; Borrowing by Fund ; Economic models ;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Alfaro, Laura & Kanczuk, Fabio, 2005. "Sovereign debt as a contingent claim: a quantitative approach," Journal of International Economics, Elsevier, vol. 65(2), pages 297-314, March. [Downloadable!] (restricted)
  2. Enrique G. Mendoza & Vivian Z. Yue, 2008. "A Solution to the Default Risk-Business Cycle Disconnect," NBER Working Papers 13861, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Vivian Z. Yue, 2005. "Sovereign Default and Debt Renegotiation," 2005 Meeting Papers 138, Society for Economic Dynamics. [Downloadable!]
  4. Barry Eichengreen & Poonam Gupta & Ashoka Mody, 2006. "Sudden Stops and IMF-Supported Programs," NBER Working Papers 12235, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Aguiar, Mark & Gopinath, Gita, 2006. "Defaultable debt, interest rates and the current account," Journal of International Economics, Elsevier, vol. 69(1), pages 64-83, June. [Downloadable!] (restricted)
    Other versions:
  6. Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  7. Barry Eichengreen, 2003. "Restructuring Sovereign Debt," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 75-98, Fall. [Downloadable!] (restricted)
  8. Carlo Cottarelli & Curzio Giannini, 2002. "Bedfellows, Hostages, or Perfect Strangers? Global Capital Markets and the Catalytic Effect of IMF Crisis Lending," IMF Working Papers 02/193, International Monetary Fund. [Downloadable!]
  9. Cristina Arellano, 2005. "Default Risk, the Real Exchange Rate and Income Fluctuations in Emerging Economies," 2005 Meeting Papers 516, Society for Economic Dynamics. [Downloadable!]
  10. Cole, Harold L & Dow, James & English, William B, 1995. "Default, Settlement, and Signalling: Lending Resumption in a Reputational Model of Sovereign Debt," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(2), pages 365-85, May. [Downloadable!] (restricted)
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  11. Cristina Arellano & Ananth Ramanarayanan, 2006. "Default and the Term Structure in Sovereign Bonds," 2006 Meeting Papers 299, Society for Economic Dynamics.
  12. Morris, Stephen & Shin, Hyun Song, 2006. "Catalytic finance: When does it work?," Journal of International Economics, Elsevier, vol. 70(1), pages 161-177, September. [Downloadable!] (restricted)
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  13. Uribe, Martin & Yue, Vivian Z., 2006. "Country spreads and emerging countries: Who drives whom?," Journal of International Economics, Elsevier, vol. 69(1), pages 6-36, June. [Downloadable!] (restricted)
  14. Barro, Robert J. & Lee, Jong-Wha, 2005. "IMF programs: Who is chosen and what are the effects?," Journal of Monetary Economics, Elsevier, vol. 52(7), pages 1245-1269, October. [Downloadable!] (restricted)
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  15. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March. [Downloadable!] (restricted)
    Other versions:
  16. Corsetti, Giancarlo & Guimaraes, Bernardo & Roubini, Nouriel, 2006. "International lending of last resort and moral hazard: A model of IMF's catalytic finance," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 441-471, April. [Downloadable!] (restricted)
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  17. Enrique G. Mandoza & Vivian Z. Yue, 2008. "A solution to the default risk-business cycle disconnect," International Finance Discussion Papers 924, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Eduardo Fernandez-Arias & Andrew Powell & Alessandro Rebucci, 2009. "The Multilateral Response to the Global Crisis: Rationale, Modalities, and Feasibility," RES Working Papers 4629, Inter-American Development Bank, Research Department. [Downloadable!]
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