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\"Burden sharing\" in sovereign debt reduction

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  • Mark M. Spiegel

Abstract

We examine a concerted debt reduction deal between a sovereign debtor, a private creditor, and an official creditor, who insures the deposits of the commercial bank. Our results show that a weakening of the financial position of the commercial bank reduces the contribution of the commercial bank and increases that of the official creditor, without affecting the net terms faced by the debtor. This result is robust to changes in seniority. Moreover, leaving both creditor values unchanged requires that commercial banks retire debt at \"unfairly\" high prices, while official creditors make a net contribution.

Suggested Citation

  • Mark M. Spiegel, 1994. "\"Burden sharing\" in sovereign debt reduction," Working Papers in Applied Economic Theory 94-18, Federal Reserve Bank of San Francisco.
    • Handle: RePEc:fip:fedfap:94-18
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    Cited by:

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    2. Klimenko, Mikhail M., 2002. "Trade interdependence, the international financial institutions, and the recent evolution of sovereign-debt renegotiations," Journal of International Economics, Elsevier, vol. 58(1), pages 177-209, October.

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