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Sovereign Debt Relief And Its Aftermath

Listed author(s):
  • Carmen M. Reinhart
  • Christoph Trebesch

This paper studies sovereign debt relief in a long-term perspective. We quantify the relief achieved through default and restructuring in two distinct samples: 1920-1939, focusing on the defaults on official (government to government) debt in advanced economies after World War I; and 1978-2010, focusing on emerging market debt crises with private external creditors. Debt relief was substantial in both eras, averaging 21% of GDP in the 1930s and 16% of GDP in recent decades. We then analyze the aftermath of debt relief and conduct a difference-in-differences analysis around the synchronous war debt defaults of 1934 and the Baker and Brady initiatives of the 1980s/1990s. The economic landscape of debtor countries improves significantly after debt relief operations, but only if these involve debt write-offs. Softer forms of debt relief, such as maturity extensions and interest rate reductions, are not generally followed by higher economic growth or improved credit ratings.

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File URL: http://hdl.handle.net/10.1111/jeea.2016.14.issue-1
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Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 14 (2016)
Issue (Month): 1 (February)
Pages: 215-251

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Handle: RePEc:bla:jeurec:v:14:y:2016:i:1:p:215-251
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