How to Restructure Sovereign Debt: Lessons from Four Decades

26 Pages Posted: 3 Jun 2019

See all articles by Lee C. Buchheit

Lee C. Buchheit

Center for Contract and Economic Organization

Guillaume Chabert

affiliation not provided to SSRN

Chanda DeLong

International Monetary Fund

Jeromin Zettelmeyer

Peter G. Peterson Institute for International Economics; CEPR

Date Written: May 13, 2019

Abstract

This paper attempts to provide a playbook for the sovereign debt restructuring process, drawing on the experience with sovereign debt restructuring since the 1980s. It begins with a discussion of the participating actors and their interests. It then describes the considerations that must be weighed in designing, negotiating, and concluding a debt restructuring, in light of two problems: asymmetric information between the debtor and the creditors, and creditor coordination problems, which can lead to free riding (the “holdout” problem). The paper focuses on how these problems, which can lead to inefficiently negotiated outcomes, can be managed and minimized in practice.

Keywords: Sovereign debt, financial crises, debt restructuring, debt defaults, Paris Club

JEL Classification: F340

Suggested Citation

Buchheit, Lee C. and Chabert, Guillaume and DeLong, Chanda and Zettelmeyer, Jeromin, How to Restructure Sovereign Debt: Lessons from Four Decades (May 13, 2019). Peterson Institute for International Economics Working Paper No. 19-8. Available at SSRN: https://ssrn.com/abstract=3387455 or http://dx.doi.org/10.2139/ssrn.3387455

Lee C. Buchheit

Center for Contract and Economic Organization ( email )

New York, NY

Guillaume Chabert

affiliation not provided to SSRN

Chanda DeLong

International Monetary Fund ( email )

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

Jeromin Zettelmeyer (Contact Author)

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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