The Problem that Wasn’t: Coordination Failures in Sovereign Debt Restructurings

29 Pages Posted: 20 Dec 2011

See all articles by Ran Bi

Ran Bi

International Monetary Fund (IMF)

Marcos Chamon

International Monetary Fund (IMF) - Research Department

Jeromin Zettelmeyer

Peter G. Peterson Institute for International Economics; CEPR

Date Written: November 2011

Abstract

Contrary to widespread expectation, debt renegotiations in the era of bond finance have generally been quick and involved little litigation. We present a model that rationalizes the initial fears and offers interpretations for why they did not materialize. When the exchange offer is sufficiently attractive vis-à-vis holding out, full participation can be an equilibrium. Legal innovations such as minimum participation thresholds and defensive exit consents helped coordinate creditors and avoid litigation. Unlike CACs, exit consents can be exploited to force high haircuts on creditors, but the ability of creditors to coordinate to block exit consents can limit overly aggressive use.

Keywords: Debt restructuring, Economic models, Emerging markets, Sovereign debt

Suggested Citation

Bi, Ran and Chamon, Marcos and Zettelmeyer, Jeromin, The Problem that Wasn’t: Coordination Failures in Sovereign Debt Restructurings (November 2011). IMF Working Paper No. 11/265, Available at SSRN: https://ssrn.com/abstract=1974833

Ran Bi

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Marcos Chamon (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-5867 (Phone)

Jeromin Zettelmeyer

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

CEPR ( email )

London
United Kingdom

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