Recent Episodes of Sovereign Debt Restructurings: A Case-Study Approach

82 Pages Posted: 7 Aug 2008

Date Written: August 7, 2008

Abstract

Sovereign debt restructurings do constitute a recurrent phenomenon in emerging and developing economies. Consequently, the international community has repeatedly explored options to increase the predictability and orderliness of debt workouts, of which the debate on the Sovereign Debt Restructuring Mechanism (SDRM) proposed by the IMF in 2002 is the most recent example. Eventually, however, the most ambitious reform proposals have been systematically abandoned, thereby consolidating debt restructurings as market-led case-by-case processes. This paper reviews nine recent sovereign debt restructurings: Argentina (2001-2005), Belize (2006-2007), the Dominican Republic (2004-2005), Ecuador (1999-2000), Pakistan (1998-2001), the Russian Federation (1998-2001), Serbia (2000-2004), Ukraine (1998-2000) and Uruguay (2004).

Our case study analysis reveals the lack of a single model for sovereign debt restructurings. Indeed, we find significant variations in the roots of the crises, the size of the losses undergone by investors, the speed at which an agreement was reached with creditors, the proportion of creditors accepting the terms of that agreement, or the time needed to restore access to international financial markets. There also appears to be a lack of consistency in the role played by the IMF in the various crises. This is partly due to the lack of a policy specifically designed to deal with sovereign debt restructurings in the IMF's toolkit, which has provided the IMF with flexibility to adapt to each crisis on a case-by-case basis. However, it may have exacerbated the uncertainty that tends to characterize such disruptive episodes. This paper constitutes the basis of a broader effort to identify possible options for the IMF to endow itself with a policy to streamline and systematize its role during sovereign debt restructurings.

Keywords: IMF, sovereign debt, restructurings, default, solvency

JEL Classification: E65, F34, H63

Suggested Citation

Díaz-Cassou, Javier and Erce, Aitor and Vázquez-Zamora, Juan J., Recent Episodes of Sovereign Debt Restructurings: A Case-Study Approach (August 7, 2008). Banco de Espana Occasional Paper No. 0804, Available at SSRN: https://ssrn.com/abstract=1210382 or http://dx.doi.org/10.2139/ssrn.1210382

Javier Díaz-Cassou

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

HOME PAGE: http://www.bde.es

Aitor Erce (Contact Author)

UPNA ( email )

Pamplona
Spain

Juan J. Vázquez-Zamora

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

HOME PAGE: http://www.bde.es/

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