Costs of Sovereign Defaults: Restructuring Strategies and Financial Intermediation
37 Pages Posted: 24 May 2021
Date Written: May 24, 2021
Sovereign debt restructurings are associated with declines in the growth of GDP, investment, bank credit to the private sector and capital flows. Our empirical findings show that the intensity of these losses depends on two aspects: whether the restructuring preempts a default and the extent of the country’s reliance on bank intermediation. Post-default restructurings are associated with worse outcomes than restructurings that take place preemptively without missing payments to creditors and going into default. Much of that difference is driven by the particularly adverse effects experienced after post-default restructurings in countries with relatively larger banking sectors.
Keywords: Sovereign Debt; Sovereign Defaults; Sovereign Debt Restructurings; GDP Growth; Investment; Local Projection
JEL Classification: F34; F41; H63;
Suggested Citation: Suggested Citation