Sovereign Debt Restructurings: Delays in Renegotiations and Risk Averse Creditors

72 Pages Posted: 12 Jan 2017 Last revised: 25 Jun 2019

See all articles by Tamon Asonuma

Tamon Asonuma

International Monetary Fund Research Department

Hyungseok Joo

Wayne State University - Department of Economics

Date Written: May 1, 2019

Abstract

Foreign creditors' business cycles influence both the process and the outcome of sovereign debt restructurings. We compile two datasets on creditor committees and chairs and on creditor business and financial cycles at the restructurings, and nd that when creditors experience high GDP growth, restructurings are delayed and settled with smaller haircuts. To rationalize these stylized facts, we develop a theoretical model of sovereign debt with multi-round renegotiations between a risk averse sovereign debtor and a risk averse creditor. The quantitative analysis of the model shows that high creditor income results in both longer delays in renegotiations and smaller haircuts. Our theoretical predictions are supported by data.

Keywords: Sovereign Debt; Sovereign Default; Sovereign Debt Restructuring; Delays in Negotiations; Risk Averse Creditor

JEL Classification: F34; F41; H63

Suggested Citation

Asonuma, Tamon and Joo, Hyungseok, Sovereign Debt Restructurings: Delays in Renegotiations and Risk Averse Creditors (May 1, 2019). Available at SSRN: https://ssrn.com/abstract=2897145 or http://dx.doi.org/10.2139/ssrn.2897145

Tamon Asonuma (Contact Author)

International Monetary Fund Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Hyungseok Joo

Wayne State University - Department of Economics ( email )

656 W. Kirby
Detroit, MI 48202
United States

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