Debt Restructuring

38 Pages Posted: 12 Jun 2000 Last revised: 18 Oct 2010

See all articles by Benjamin M. Friedman

Benjamin M. Friedman

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: May 2000

Abstract

What difference does it make, and for whom, whether the nonperforming debts of emerging market borrowers are restructured? This paper begins by positing a set of counterfactual conditions under which restructuring would not matter, and then shows how several ways in which the actual world of international lending departs from these conditions give both lenders and borrowers ample reason to care whether nonperforming debts are restructured. One implication of the way in which debt restructuring matters is that restructuring should not be too' easy. Further, with a greater frequency of defaults, some credit flows to emerging market countries would not be extended in the first place. An important element driving this line of argument is moral hazard, but (unlike in much of the recent literature of emerging market debt problems) what is central here is not the availability of credit from the IMF or other official lenders but the more fundamental moral hazard inherent in all uncollateralized borrower-lender relationships.

Suggested Citation

Friedman, Benjamin M., Debt Restructuring (May 2000). NBER Working Paper No. w7722. Available at SSRN: https://ssrn.com/abstract=232107

Benjamin M. Friedman (Contact Author)

Harvard University - Department of Economics ( email )

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