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Sovereign Debt Restructurings: Delays in Renegotiations and Risk Averse Creditors

Author

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  • Tamon Asonuma

    (International Monetary Fund)

  • Hyungseok Joo

    (University of Surrey)

Abstract

Foreign creditors' business cycles influence both the process and the outcome of sovereign debt restructurings. We compile two datasets on creditor committees and chairs and on creditor business and financial cycles at the restructurings, and find that when creditors experience high GDP growth, restructurings are delayed and settled with smaller haircuts. To rationalize these stylized facts, we develop a theoretical model of sovereign debt with multi-round renegotiations between a risk averse sovereign debtor and a risk averse creditor. The quantitative analysis of the model shows that high creditor income results in both longer delays in renegotiations and smaller haircuts. Our theoretical predictions are supported by data.

Suggested Citation

  • Tamon Asonuma & Hyungseok Joo, 2019. "Sovereign Debt Restructurings: Delays in Renegotiations and Risk Averse Creditors," School of Economics Discussion Papers 1119, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:1119
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    File URL: https://repec.som.surrey.ac.uk/2019/DP11-19.pdf
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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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