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Inefficient private renegotiation of sovereign debt

  • Kletzer, Kenneth M.

The negotiation of sovereign debt repayments and of new loans after default may yield inefficient outcomes that justify intervention by creditor country governments and international financial institutions. The author analyzes possible distortions arising in renegotiations between private creditors and sovereign borrowers. He argues that legal privileges accorded to existing creditors in their home jurisdictions can distort the flow of resources for capital formation abroad. Seniority privileges for old lenders convey to them some of the social returns from new lending, reducing the potential rewards for those who might provide the new funds. Hence the author urges investigation of official alienation of these privileges, regulatory reform, and introduction of alternative financial instruments that embody opportunities for creditor commitment.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 441.

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Date of creation: 31 Oct 1990
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Handle: RePEc:wbk:wbrwps:441
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  1. Kletzer, K.M., 1988. "Sovereign Debt Renegotiation Under Asymmetric Information," Papers 555, Yale - Economic Growth Center.
  2. repec:oup:restud:v:54:y:1987:i:3:p:345-64 is not listed on IDEAS
  3. Raquel Fernandez & Robert W. Rosenthal, 1988. "Sovereign-debt Renegotiations: A Strategic Analysis," NBER Working Papers 2597, National Bureau of Economic Research, Inc.
  4. Jeremy A.Rogoff Bulow & Kenneth, 1986. "A Constant Recontracting Model of Sovereign Debt," University of Chicago - George G. Stigler Center for Study of Economy and State 43, Chicago - Center for Study of Economy and State.
  5. repec:oup:restud:v:48:y:1981:i:2:p:289-309 is not listed on IDEAS
  6. Kletzer, Kenneth M, 1984. "Asymmetries of Information and LDC Borrowing with Sovereign Risk," Economic Journal, Royal Economic Society, vol. 94(374), pages 287-307, June.
  7. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  8. Kenneth A. Froot & David S. Scharfstein & Jeremy C. Stein, 1988. "LDC Debt: Forgiveness, Indexation, and Investment Incentives," NBER Working Papers 2541, National Bureau of Economic Research, Inc.
  9. Eaton, Jonathan, 1990. "Debt Relief and the International Enforcement of Loan Contracts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 43-56, Winter.
  10. Herschel I. Grossman & John B. Van Huyck, 1985. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," NBER Working Papers 1673, National Bureau of Economic Research, Inc.
  11. Harris, Milton & Raviv, Artur, 1979. "Optimal incentive contracts with imperfect information," Journal of Economic Theory, Elsevier, vol. 20(2), pages 231-259, April.
  12. Worrall, Tim, 1990. "Debt with potential repudiation," European Economic Review, Elsevier, vol. 34(5), pages 1099-1109, July.
  13. repec:oup:restud:v:52:y:1985:i:4:p:647-63 is not listed on IDEAS
  14. repec:oup:restud:v:50:y:1983:i:3:p:411-26 is not listed on IDEAS
  15. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
  16. Sappington, David, 1983. "Limited liability contracts between principal and agent," Journal of Economic Theory, Elsevier, vol. 29(1), pages 1-21, February.
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