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Undisclosed Debt Sustainability

Author

Listed:
  • Laura Alfaro
  • Fabio Kanczuk

Abstract

Over the past decade, non–Paris Club creditors, notably China, have become an important source of financing for low- and middle-income countries. In contrast with typical sovereign debt, these lending arrangements are not public, and other creditors have no information about their magnitude. We transform the traditional sovereign debt and default model to quantitatively study incomplete information arrangements and find they greatly reduce traditional/Paris Club creditors’ debt sustainability. Disclosure of nontraditional debt would imply significant welfare gains for the recipient countries but would reduce its sustainability. We discuss the implications of nontraditional lending on standard assumptions of sovereign debt models in particular defaulting costs.

Suggested Citation

  • Laura Alfaro & Fabio Kanczuk, 2019. "Undisclosed Debt Sustainability," NBER Working Papers 26347, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26347
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    More about this item

    JEL classification:

    • F0 - International Economics - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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