Creditor discrimination during sovereign debt restructurings

Aitor Erce () and Javier Díaz-Cassou
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Aitor Erce: Banco de España

No 1027, Working Papers from Banco de España

Abstract: This paper explores patterns of discrimination between residents and foreign creditors during recents sovereign debt restructurings. We analyze 10 recent episodes distinguishing between neutral cases in which the sovereign treated creditors equitably irrespective of their nationality and instances of discrimination against residents and non-residents. We then present evidence in support of the hypothesis that these patterns of discrimination can be explained by the origin of liquidity pressures, the ex ante soundness of the banking system and the extent of the domestic corporate sector’s reliance on international financial markets. On the theoretical side, we present a simple model of a government’s strategic decision to diferentiate between the servicing of its domestic and its external debt. In our model, the basic trade-off facing the authorities is to default on external debt and in so doing restricting private access to international capital markets or to default on domestic debt, thereby curtailing the banking sector’s capacity to lend to domestic firms.

Keywords: sovereign default; discrimination; bank credit; foreign capital (search for similar items in EconPapers)
JEL-codes: E65 F34 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2010-09
New Economics Papers: this item is included in nep-ban and nep-ifn
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1027

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