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

Author

Listed:
  • Javier Díaz-Cassou

    () (Banco de España)

  • Aitor Erce-Domínguez

    () (Banco de España)

  • Juan J. Vázquez-Zamora

    () (Banco de España)

Abstract

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.

Suggested Citation

  • Javier Díaz-Cassou & Aitor Erce-Domínguez & Juan J. Vázquez-Zamora, 2008. "The role of the IMF in recent sovereign debt restructurings: Implications for the policy of lending into arrears," Occasional Papers 0805, Banco de España;Occasional Papers Homepage.
  • Handle: RePEc:bde:opaper:0805
    as

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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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    References listed on IDEAS

    as
    1. Eichengreen, Barry & Portes, Richard, 1989. "Dealing with Debt: The 1930s and the 1980s," CEPR Discussion Papers 300, C.E.P.R. Discussion Papers.
    2. Niko Gobbin & Bruno Merlevede, 2000. "The Russian Crisis: A Debt Perspective," Post-Communist Economies, Taylor & Francis Journals, vol. 12(2), pages 141-163.
    3. 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.
    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," Occasional Papers 0804, Banco de España;Occasional Papers Homepage.
    6. Bjoern Rother & Ivetta Hakobyan & Monica B de Bolle, 2006. "The Level and Composition of Public Sector Debt in Emerging Market Crises," IMF Working Papers 06/186, International Monetary Fund.
    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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Aitor Erce, 2013. "Sovereign debt crises: could an international court minimize them?," Globalization and Monetary Policy Institute Working Paper 142, Federal Reserve Bank of Dallas.
    2. Aitor Erce, 2012. "Selective sovereign defaults," Globalization and Monetary Policy Institute Working Paper 127, Federal Reserve Bank of Dallas.
    3. Ugo Panizza & Federico Sturzenegger & Jeromin Zettelmeyer, 2009. "The Economics and Law of Sovereign Debt and Default," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 651-698, September.
    4. Carmen M. Reinhart & Christoph Trebesch, 2016. "The International Monetary Fund: 70 Years of Reinvention," Journal of Economic Perspectives, American Economic Association, vol. 30(1), pages 3-28, Winter.
    5. Aitor Erce Domiguez, 2010. "Debtor Discrimination During Sovereign Debt Restructurings," 2010 Meeting Papers 1324, Society for Economic Dynamics.
    6. Pablo Moreno, 2013. "The Metamorphosis of the IMF (2009-2011)," Estudios Económicos, Banco de España;Estudios Económicos Homepage, number 78, June.
    7. Erce, Aitor, 2014. "Banking on seniority: the IMF and the sovereign’s creditors," Globalization and Monetary Policy Institute Working Paper 175, Federal Reserve Bank of Dallas.
    8. Gong Cheng & Javier Díaz Cassou & Aitor Erce, 2017. "From Debt Collection to Relief Provision: 60 Years of Official Debt Restructurings through the Paris Club," IDB Publications (Working Papers) 8081, Inter-American Development Bank.
    9. Javier Díaz-Cassou & Aitor Erce-Domínguez & Juan J. Vázquez-Zamora, 2008. "Recent episodes of sovereign debt restructurings. A case-study approach," Occasional Papers 0804, Banco de España;Occasional Papers Homepage.

    More about this item

    Keywords

    IMF; sovereign debt; restructurings; default; solvency;

    JEL classification:

    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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