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Sovereign Debt Restructurings: Preemptive Or Post-Default

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  • Tamon Asonuma
  • Christoph Trebesch

Abstract

Sovereign debt restructurings can be implemented preemptively - prior to a payment default. We code a comprehensive new dataset and find that preemptive restructurings (i) are frequent (38% of all deals 1978-2010), (ii) have lower haircuts, (iii) are quicker to negotiate, and (iv) see lower output losses. To rationalize these stylized facts, we build a quantitative sovereign debt model that incorporates preemptive and post-default renegotiations. The model improves the fit with the data and explains the sovereign's optimal choice: preemptive restructurings occur when default risk is high ex-ante, while defaults occur after unexpected bad shocks. Empirical evidence supports these predictions.
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Suggested Citation

  • Tamon Asonuma & Christoph Trebesch, 2016. "Sovereign Debt Restructurings: Preemptive Or Post-Default," Journal of the European Economic Association, European Economic Association, vol. 14(1), pages 175-214, February.
    • Handle: RePEc:bla:jeurec:v:14:y:2016:i:1:p:175-214
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    File URL: http://hdl.handle.net/10.1111/jeea.2016.14.issue-1
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    References listed on IDEAS

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    1. Tamon Asonuma & Gerardo Peraza & Kristine Vitola & Takahiro Tsuda, 2014. "Sovereign Debt Restructurings in Belize; Achievements and Challenges Ahead," IMF Working Papers 14/132, International Monetary Fund.
    2. Tamon Asonuma & Hyungseok Joo, 2019. "Sovereign Debt Restructurings: Delays in Renegotiations and Risk Averse Creditors," School of Economics Discussion Papers 1119, School of Economics, University of Surrey.
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    4. Tamon Asonuma, 2010. "Serial Default and Debt Renegotiation," 2010 Meeting Papers 169, Society for Economic Dynamics.
    5. David Benjamin & Mark L. J. Wright, 2009. "Recovery Before Redemption: A Theory Of Delays In Sovereign Debt Renegotiations," CAMA Working Papers 2009-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
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    More about this item

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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