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Orderly Sovereign Debt Restructuring : Missing in Action! / Otaviano Canuto
World Bank Open Knowledge Repository (formerly "World Bank E-Library Publications") Available online
View online- Format:
- Book
- Government document
- Author/Creator:
- Canuto, Otaviano
- Series:
- Policy research working papers.
- World Bank e-Library.
- Language:
- English
- Subjects (All):
- Access to Finance.
- Bankruptcy and Resolution of Financial Distress.
- Debt Markets.
- Debt Restructuring.
- Emerging Markets.
- External Debt.
- Liquidity.
- Macroeconomics and Economic Growth.
- Poverty Reduction.
- Seniority.
- Solvency.
- Sovereign Debt.
- Local Subjects:
- Access to Finance.
- Bankruptcy and Resolution of Financial Distress.
- Debt Markets.
- Debt Restructuring.
- Emerging Markets.
- External Debt.
- Liquidity.
- Macroeconomics and Economic Growth.
- Poverty Reduction.
- Seniority.
- Solvency.
- Sovereign Debt.
- Physical Description:
- 1 online resource (35 pages)
- Other Title:
- Orderly Sovereign Debt Restructuring
- Place of Publication:
- Washington, D.C., The World Bank, 2012
- System Details:
- data file
- Summary:
- This paper takes a hard look at the experience with official intervention in sovereign debt crises, focusing on debt crises of the 1980s, Russia in 1998, Argentina in 2001, and Greece in 2010. Based on the track record, the authors argue that in situations where countries face a solvency problem, official intervention is more likely to succeed if official money is lent at the risk-free rate reflecting its seniority and private creditors receive an upfront haircut. Such an approach would limit the costs associated with procrastination and increase the chances of success by enabling a more realistic fiscal program to restore solvency. They examine the moral hazard implications for debtor countries of this proposal and find that these are unlikely to be severe. In fact, after their crises of 1997-2001, emerging market countries embarked on an aggressive and comprehensive program of self-insurance, indicating that they are weary of debt crises and their costs. However, the prospect of an upfront haircut for private creditors in the event of insolvency is likely to make them more diligent in their sovereign lending decisions.
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