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Debtor Discrimination During Sovereign Debt Restructurings

  • Aitor Erce Domiguez

    (Bank of Spain)

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    This paper explores patterns of discrimination between residents and foreign creditors during recent sovereign debt restructurings. We analyze 10 recent episodes distinguishing between neutral cases in which the sovereign treated creditors equitably irrespective of their nationality and instances of discrimination against residents and non-residents. We then present evidence in support of the hypothesis that these patterns of discrimination can be explained by the origin of liquidity pressures, the ex ante soundness of the banking system and the extent of the domestic corporate sector's reliance on international financial markets. On the theoretical side, we present a simple model of a government's strategic decision to differentiate between the servicing of its domestic and its external debt. In our model, the basic trade-off facing the authorities is to default on external debt and in so doing restricting private access to international capital markets or to default on domestic debt, thereby curtailing the banking sector's capacity to lend to domestic firms.

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    File URL: https://economicdynamics.org/meetpapers/2010/paper_1324.pdf
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    Paper provided by Society for Economic Dynamics in its series 2010 Meeting Papers with number 1324.

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    Date of creation: 2010
    Date of revision:
    Handle: RePEc:red:sed010:1324
    Contact details of provider: Postal:
    Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page: http://www.EconomicDynamics.org/
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