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Analytics of sovereign debt restructuring

Authors
Journal
Journal of International Economics
0022-1996
Publisher
Elsevier
Publication Date
Volume
65
Issue
2
Identifiers
DOI: 10.1016/j.jinteco.2003.12.004
Keywords
  • Sovereign Debt
  • Restructuring Mechanisms
  • Collective Action Clauses
  • International Bankruptcy Court
  • International Monetary Fund

Abstract

Abstract This paper develops a simple theoretical model to analyse recent proposals on restructuring of sovereign bonds. We find that collective action clauses (CACs) inserted in bonds resolve the inefficiencies caused by intra-creditor coordination problems providing that all parties have complete information about each other's preferences. In such a world, statutory mechanisms, such as international bankruptcy courts, are unnecessary. This is no longer the case when the benefits from reaching a restructuring agreement are private information to the debtor and its creditors due to inefficiencies caused by the debtor–creditor bargaining problem.

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