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Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean “Haircut” Excessive?

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  • Sebastian Edwards

Abstract

I use data on 180 sovereign defaults to analyze what determines the recovery rate after a debt restructuring process. Why do creditors recover, in some cases, more than 90 %, while in other cases they recover less than 10 %? I find support for the Grossman and Van Huyk model of “excusable defaults”: countries that experience more severe negative shocks tend to have higher “haircuts” than countries that face less severe shocks. I discuss in detail debt restructuring episodes in Argentina, Chile, Uruguay and Greece. The results suggest that the haircut imposed by Argentina in its 2005 restructuring (75 %) was “excessively high.” The other episodes’ haircuts are consistent with the model. Copyright Springer Science+Business Media New York 2015

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  • Sebastian Edwards, 2015. "Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean “Haircut” Excessive?," Open Economies Review, Springer, vol. 26(5), pages 839-867, November.
    • Handle: RePEc:kap:openec:v:26:y:2015:i:5:p:839-867
    DOI: 10.1007/s11079-015-9350-3
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    References listed on IDEAS

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    1. Yue, Vivian Z., 2010. "Sovereign default and debt renegotiation," Journal of International Economics, Elsevier, vol. 80(2), pages 176-187, March.
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    2. Aurore Burietz & Loredana Ureche - Rangau, 2016. "A modern Dionysus' tale: new evidence on the Greek debt crisis and the related costs," Economics Bulletin, AccessEcon, vol. 36(4), pages 1938-1950.
    3. Martin Guzman & Domenico Lombardi, 2018. "Assessing the Appropriate Size of Relief in Sovereign Debt Restructuring," Documentos de trabajo del Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET) 2018-26, Universidad de Buenos Aires, Facultad de Ciencias Económicas, Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET).
    4. Serhan Cevik & João Tovar Jalles, 2022. "An Apocalypse Foretold: Climate Shocks and Sovereign Defaults," Open Economies Review, Springer, vol. 33(1), pages 89-108, February.
    5. Kalamov, Zarko Y. & Zimmermann, Karl J., 2023. "GDP-linked bonds and economic growth," Journal of International Money and Finance, Elsevier, vol. 137(C).

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