The Stock of External Sovereign Debt: Can We Take the Data at ‘Face Value’?

55 Pages Posted: 17 May 2014

See all articles by Daniel A. Dias

Daniel A. Dias

University of Illinois at Urbana-Champaign - Department of Economics; Technical University of Lisbon (UTL) - Centre for Applied Mathematics and Economics (CEMAPRE)

Christine Richmond

International Monetary Fund (IMF)

Mark L. J. Wright

Federal Reserve Banks - Federal Reserve Bank of Minneapolis

Multiple version iconThere are 2 versions of this paper

Date Written: May 9, 2014

Abstract

The stock of sovereign debt is typically measured at face value. Defined as the undiscounted sum of future principal repayments, face values are misleading when debts are issued with different contractual forms or maturities. In this paper, we construct alternative measures of the stock of external sovereign debt for 100 developing countries from 1979 through 2006 that correct for differences in contractual form and maturity. We show that our alternative measures: (1) paint a very different quantitative, and in some cases also qualitative, picture of the stock of developing country external sovereign debt; 2) often invert rankings of indebtedness across countries, which historically defined eligibility for debt forgiveness; (3) indicate that the empirical performance of the benchmark quantitative model of sovereign debt deteriorates by roughly 50% once model-consistent measures of debt are used; (4) show how the spread of aggregation clauses in debt contracts that award creditors voting power in proportion to the contractual face value may introduce inefficiencies into the process of restructuring sovereign debts; and (5) illustrate how countries have manipulated their debt issuance to meet fiscal targets written in terms of face values.

Keywords: Sovereign Debt, Face Values, Sovereign Debt Restructuring, Government Budget

JEL Classification: F30, F34, H63

Suggested Citation

Dias, Daniel A. and Richmond, Christine and Wright, Mark L.J., The Stock of External Sovereign Debt: Can We Take the Data at ‘Face Value’? (May 9, 2014). FRB of Chicago Working Paper No. 2014-05. Available at SSRN: https://ssrn.com/abstract=2437928 or http://dx.doi.org/10.2139/ssrn.2437928

Daniel A. Dias

University of Illinois at Urbana-Champaign - Department of Economics ( email )

410 David Kinley Hall
1407 W. Gregory
Urbana, IL 61801
United States

Technical University of Lisbon (UTL) - Centre for Applied Mathematics and Economics (CEMAPRE) ( email )

Rua do Quelhas, 6
Lisboa, 1200
Portugal

Christine Richmond

International Monetary Fund (IMF) ( email )

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

Mark L.J. Wright (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Minneapolis ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States

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