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The role of the IMF in recent sovereign debt restructurings: Implications for the policy of lending into arrears

  • Javier Díaz-Cassou

    ()

    (Banco de España)

  • Aitor Erce-Domínguez

    ()

    (Banco de España)

  • Juan J. Vázquez-Zamora

    ()

    (Banco de España)

This paper analyzes the role played by the IMF in eight recent sovereign debt restructurings from a comparative perspective: Argentina (2001-2005), the Dominican Republic (2004-2005), Ecuador (1999-2000), Pakistan (1998-2001), the Russian Federation (1998-2001), Serbia (2000-2004), Ukraine (1998-2000) and Uruguay (2004). Our objective is to identify the various dimensions of the IMF's potential involvement during those processes, and to extract some relevant policy implications to reform the Policy of Lending Into Arrears. We find that the IMF can potentially exert a substantial influence on sovereign debt restructurings by influencing countries' decision to restructure when the debt burden is deemed unsustainable, by providing official finance to substitute for a loss of access to international financial markets, by setting a medium-term domestic adjustment path through conditionality, by providing 'independent' information at a time of heightened uncertainty, and by providing incentives both to creditors and debtors. However, a lack of consistency has tended to characterize the role of the IMF in recent sovereign debt restructurings. In part, this reflects the flexibility with which the IMF has adapted its intervention to country-specific factors. However, we argue that this lack of consistency has tended to exacerbate the uncertainty and information asymmetries that are often associated with sovereign debt restructurings, and that a more systematic approach is needed.

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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/08/Fic/do0805e.pdf
File Function: First version, August 2008
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Occasional Papers with number 0805.

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Length: 37 pages
Date of creation: Aug 2008
Date of revision:
Handle: RePEc:bde:opaper:0805
Contact details of provider: Web page: http://www.bde.es/
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  1. Barry Eichengreen and Richard Portes., 1989. "Dealing with Debt: The 1930s and the 1980s," Economics Working Papers 89-104, University of California at Berkeley.
  2. Harald Finger & Mauro Mecagni, 2007. "Sovereign Debt Restructuring and Debt Sustainability; An Analysis of Recent Cross-Country Experience," IMF Occasional Papers 255, International Monetary Fund.
  3. Bjoern Rother & Ivetta Hakobyan & Monica Baumgarten de Bolle, 2006. "The Level and Composition of Public Sector Debt in Emerging Market Crises," IMF Working Papers 06/186, International Monetary Fund.
  4. Federico Sturzenegger & Jeromin Zettelmeyer, 2007. "Creditors' Losses Versus Debt Relief: Results from a Decade of Sovereign Debt Crises," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 343-351, 04-05.
  5. Javier Díaz-Cassou & Aitor Erce-Domínguez & Juan J. Vázquez-Zamora, 2008. "Recent episodes of sovereign debt restructurings. A case-study approach," Banco de Espa�a Occasional Papers 0804, Banco de Espa�a.
  6. Niko Gobbin & Bruno Merlevede, 2000. "The Russian Crisis: A Debt Perspective," Post-Communist Economies, Taylor & Francis Journals, vol. 12(2), pages 141-163.
  7. Abbigail J. Chiodo & Michael T. Owyang, 2002. "A case study of a currency crisis: the Russian default of 1998," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 7-18.
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