Life after default. Private and official deals

Marchesi, Silvia; Masi, Tania

doi:10.1016/j.jimonfin.2020.102339

Cited by 5 publications

(3 citation statements)

References 79 publications

(128 reference statements)

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“…Studies by Depetris Chauvin and Kraay (2005), Presbitero (2009) and Johansson (2010) fail to uncover a clear debt relief-growth nexus. However, accounting for debt restructuring heterogeneities, Cheng et al (2019) and Marchesi and Masi (2021) both find that Paris Club debt treatments involving (large) nominal haircuts tend to be associated with positive growth in the following years. That notwithstanding, establishing strict causality from (deep) relief to multi-year growth remains difficult.…”

Section: Results Of Hipc Initiative and Mdrimentioning

confidence: 94%

Towards HIPC 2.0? Lessons from Past Debt Relief Initiatives for Addressing Current Debt Problems

Essers¹,

Cassimon²

2022

Journal of Globalization and Development

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When the COVID-19 pandemic added to already elevated debt vulnerabilities in low-income countries, the G20 launched the Debt Service Suspension Initiative (DSSI) and the Common Framework for Debt Treatments beyond the DSSI, which have provided limited relief so far. For several countries, deeper and more wide-ranging debt treatments will likely be needed to secure future debt sustainability. This paper looks at the Heavily Indebted Poor Countries (HIPC) initiative, the largest and most comprehensive debt relief effort for low-income countries to date, as a potential reference point for the 2020s. While the HIPC initiative appears to have been a qualified success, its replication in the current context would be infeasible and undesirable. Creditor base heterogeneity justifies a more flexible, differentiated approach to debt restructuring. Yet, the HIPC experience holds valuable lessons. “Delay and replay” tendencies should be avoided. Involving commercial creditors is a real challenge, requiring carrots and sticks. And imposing extra conditionality on debt relief proceeds could be helpful but should not be overdone. Even if the Common Framework is unlikely to suffice in case of a systemic debt crisis, its inter-creditor dialogue could perhaps serve as the basis for a more inclusive advisory body or forum for debt restructuring.

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Section: Results Of Hipc Initiative and Mdrimentioning

confidence: 94%

Towards HIPC 2.0? Lessons from Past Debt Relief Initiatives for Addressing Current Debt Problems

Essers¹,

Cassimon²

2022

Journal of Globalization and Development

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“…Marchesi and Masi (2021) explain that debt relief could affect a country’s prospects in at least two alternative ways. Default involving higher haircut/restructuring may entail more severe reputational costs.…”

Section: Related Literature: Sovereign Debt and The Risk Of Sovereign...mentioning

confidence: 99%

“…In addition, Easterly (2002) suggests that debt relief may reduce the incentives to implement economic reforms. Marchesi and Masi (2021) explain that debt relief could affect a country's prospects in at least two alternative ways. Default involving higher haircut/restructuring may entail more severe reputational costs.…”

Section: Related Literature: Sovereign Debt and The Risk Of Sovereign...mentioning

confidence: 99%

Unpleasant surprises? Debt relief and risk of sovereign default

Ahiadorme

2023

JFEP

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Purpose The Covid-19 pandemic has rekindled interest in sovereign debt crises amidst calls for debt relief for developing and emerging countries. But has debt relief lessened the debt burdens of emerging and developing economies? The purpose of this paper is to empirically address this question. In particular, the focus is on the implications of debt relief and institutional qualities for sovereign debt in emerging and developing economies. Design/methodology/approach The model extends the framework on the probability of default by incorporating the receipt of debt relief by a debtor country. Doing so allows to better explain movements of sovereign defaults relating to debt relief. The model is estimated via the regular probit regression. Findings The analysis shows that the debt relief provided, thus, far, failed to ease the debt overhang problems of developing and emerging countries and reduced investment. The current debt relief schemes may underscore the prospects of self-enforcing and self-fulfilling sovereign debt crises rather than eliminating the dilemma completely. Regarding the forms of debt relief, the analysis shows that debt forgiveness offers favourable prospects in terms of debt sustainability and economic outcomes than debt rescheduling. Perhaps, the sovereign debt crises, particularly in low-income countries, hinge on insolvency problems rather than transitory illiquidity issues. Practical implications Any debt relief mechanism should consider seriously the potential incentive effect that reinforces expectations of future debt-relief initiatives. Importantly, solving the sovereign debt problem requires a programme for sustained investment and economic growth, while not discounting the critical role of prudent debt management policies and institutions. Originality/value This study contributes a different angle to the debate on sovereign debt distress. Aside from the structural and economic factors, this study investigates the role of debt management policy in the debtor nation and the implications of debt relief benefits for sovereign risk. The framework also focuses on whether the different forms of debt relief exert distinctive impacts.

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Is to Forgive to Forget? Sovereign Risk in the Aftermath of Private or Official Debt Restructurings

2023

Self Cite

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We examine the link between sovereign defaults and credit risk by distinguishing between commercial and official debt and by taking into account the extent of the final restructuring events, which take place at the end of a default spell. We use a local projection-based approach, combined with propensity score weighting (Jordà and Taylor 2016 ), to estimate the average treatment effect of the final restructuring on our outcome variables of agency ratings and bond yield spreads. Our results show that the average treatment effect on ratings is negative (and positive for bond spreads) up to seven years following the final restructuring with private creditors, while the opposite holds for official creditors. Furthermore, our results are robust to using a panel analysis, which allows us to investigate the importance of the final haircut size. Specifically, we find that the rating (spread) variation (increase) is larger for cases with deeper haircuts. Therefore, we find evidence that official and private defaults have different costs and then may induce selective defaults. Supplementary Information The online version contains supplementary material available at 10.1057/s41308-023-00198-8.

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Life after default. Private and official deals

Cited by 5 publications

References 79 publications

Towards HIPC 2.0? Lessons from Past Debt Relief Initiatives for Addressing Current Debt Problems

Towards HIPC 2.0? Lessons from Past Debt Relief Initiatives for Addressing Current Debt Problems

Unpleasant surprises? Debt relief and risk of sovereign default

Is to Forgive to Forget? Sovereign Risk in the Aftermath of Private or Official Debt Restructurings

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