Advanced Search
MyIDEAS: Login to save this paper or follow this series

Sovereign Debt, Structural Adjustment and Conditionality

Contents:

Author Info

  • Marcel Fafchamps

Abstract

The lack of proper enforcement mechanism for sovereign debt generates a commitment failure. As a result, a sovereign may seek to improve its position in debt renegotiations and thus evade its debt obligations by reducing exports. Conditionality seeks to provide a solution to the incentive problem by addressing the commitment failure. Formalizing this argument, we show that conditionality helps the repayment of sovereign debt. In certain circumstances, it can eliminate debt overhang, especially when it is coupled with concessionary lending of sufficient magnitude. It is, however, unable to restore first best. When it is anticipated by lenders, conditionality may get IFIs and sovereign debtors into a trap where the debt overhang persist, debt rescheduling takes place periodically, and conditionality continues indefinitely. Forthcoming in the Journal of Development Economics, November 1996

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.stanford.edu/~fafchamp/sover.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Stanford University, Department of Economics in its series Working Papers with number 96015.

as in new window
Length:
Date of creation:
Date of revision:
Handle: RePEc:wop:stanec:96015

Contact details of provider:
Postal: Ralph Landau Economics Building, Stanford, CA 94305-6072
Phone: (650)-725-3266
Fax: (650)-725-5702
Email:
Web page: http://www-econ.stanford.edu/econ/workp/
More information through EDIRC

Related research

Keywords:

Other versions of this item:

References

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.:
as in new window
  1. Lee, Suk Hun, 1991. "Ability and willingness to service debt as explanation for commercial and official rescheduling cases," Journal of Banking & Finance, Elsevier, vol. 15(1), pages 5-27, February.
  2. Claessens, Stijn, 1990. "The debt laffer curve: Some estimates," World Development, Elsevier, vol. 18(12), pages 1671-1677, December.
  3. Cohen, Daniel, 1990. "Debt Relief: Implications of Secondary Market Discounts and Debt Overhangs," World Bank Economic Review, World Bank Group, vol. 4(1), pages 43-53, January.
  4. Eaton, Jonathan, 1990. "Debt Relief and the International Enforcement of Loan Contracts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 43-56, Winter.
  5. Raquel Fernandez & Jacob Glazer, 1989. "The Scope for Collusive Behavior Among Debtor Countries," NBER Working Papers 2980, National Bureau of Economic Research, Inc.
  6. Jeffrey Sachs & Harry Huizinga, 1987. "U.S. Commercial Banks and the Developing-Country Debt Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(2), pages 555-606.
  7. Barry J. Eichengreen & Richard Portes, 1985. "Debt and Default in the 1930s: Causes and Consequences," NBER Working Papers 1772, National Bureau of Economic Research, Inc.
  8. Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
  9. Eaton, Jonathan & Gersovitz, Mark, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Wiley Blackwell, vol. 48(2), pages 289-309, April.
  10. Jeremy I. Bulow & Kenneth Rogoff, 1987. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
  11. Rosenthal, Robert W., 1991. "On the incentives associated with sovereign debt," Journal of International Economics, Elsevier, vol. 30(1-2), pages 167-176, February.
  12. Diwan, Ishac, 1990. "Linking trade and external debt strategies," Journal of International Economics, Elsevier, vol. 29(3-4), pages 293-310, November.
  13. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 255-296 National Bureau of Economic Research, Inc.
  14. Jeremy Bulow & Kenneth Rogoff, 1998. "Sovereign Debt: Is to Forgive to Forget," Levine's Working Paper Archive 209, David K. Levine.
  15. Worrall, Tim, 1990. "Debt with potential repudiation," European Economic Review, Elsevier, vol. 34(5), pages 1099-1109, July.
  16. Steven C. Kyle & Jeffrey Sachs, 1984. "Developing Country Debt and the Market Value of Large Commercial Banks," NBER Working Papers 1470, National Bureau of Economic Research, Inc.
  17. Jeffrey D. Sachs, 1989. "Conditionality, Debt Relief, and the Developing Country Debt Crisis," NBER Chapters, in: Developing Country Debt and the World Economy, pages 275-284 National Bureau of Economic Research, Inc.
  18. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and Economic Performance, Volume 1: The International Financial System, pages 39-106 National Bureau of Economic Research, Inc.
  19. 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.
  20. Joshua Aizenman, 1988. "Trade Dependency, Bargaining and External Debt," NBER Working Papers 2726, National Bureau of Economic Research, Inc.
  21. Claessens, Stijn & Diwan, Ishac, 1990. "Investment Incentives: New Money, Debt Relief, and the Critical Role of Conditionality in the Debt Crisis," World Bank Economic Review, World Bank Group, vol. 4(1), pages 21-41, January.
  22. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  23. Joshua Greene, 1989. "The External Debt Problem of Sub-Saharan Africa," IMF Staff Papers, Palgrave Macmillan, vol. 36(4), pages 836-874, December.
  24. Paul R. Krugman, 1988. "Financing vs. Forgiving a Debt Overhang," NBER Working Papers 2486, National Bureau of Economic Research, Inc.
  25. Kletzer, K.M. & Wright, B.D., 1990. "Sovereign Debt Renegotiation In A Consumption-Smoothing Model," Papers 610, Yale - Economic Growth Center.
  26. Elhanan Helpman, 1989. "Voluntary Debt Reduction: Incentives and Welfare," IMF Staff Papers, Palgrave Macmillan, vol. 36(3), pages 580-611, September.
  27. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
  28. Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, vol. 78(5), pages 1088-97, December.
  29. Caskey, John P., 1989. "The IMF and concerted lending in Latin American debt restructurings: a formal analysis," Journal of International Money and Finance, Elsevier, vol. 8(1), pages 105-120, March.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Prasanna Gai & Nicholas Vause, 2003. "Sovereign debt workouts with the IMF as delegated monitor - a common agency approach," Bank of England working papers 187, Bank of England.
  2. Axel Dreher, 2009. "IMF conditionality: theory and evidence," Public Choice, Springer, vol. 141(1), pages 233-267, October.
  3. Marcel Fafchamps & Flore Gubert, 2007. "Contingent Loan Repayment in the Philippines," Economic Development and Cultural Change, University of Chicago Press, vol. 55, pages 633-667.
  4. Carlos Eduardo Gonçalves & Bernardo Guimarães, 2012. "Sovereign default risk and commitment for fiscal adjustment," Working Papers, Department of Economics 2012_23, University of São Paulo (FEA-USP).
  5. Giulio Federico, 2001. "IMF Conditionality," Economics Papers 2001-W19, Economics Group, Nuffield College, University of Oxford, revised 01 Sep 2001.
  6. Markus Jorra, 2010. "The Effect of IMF Lending on the Probability of Sovereign Debt Crises," MAGKS Papers on Economics 201026, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  7. Devesh KAPUR & Richard WEBB, 2000. "Governance-Related Conditionalities Of The International Financial Institutions," G-24 Discussion Papers 6, United Nations Conference on Trade and Development.
  8. Raul Hopkins & Andrew Powell & Amlan Roy & Christopher L. Gilbert, 1997. "The World Bank And Conditionality," Journal of International Development, John Wiley & Sons, Ltd., vol. 9(4), pages 507-516.
  9. Menbere Workie Tiruneh, 2005. "Why heavily indebted poor countries have failed to pay back their debt? An empirical investigation (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(3-4), pages 124-140, March.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wop:stanec:96015. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Thomas Krichel).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.