Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean “Haircut” Excessive?

Sebastian Edwards

No 20964, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: I use data on 180 sovereign defaults to analyze what determines the recovery rate after a debt restructuring process. Why do creditors recover, in some cases, more than 90%, while in other cases they recover less than 10%? I find support for the Grossman and Van Huyk model of “excusable defaults”: countries that experience more severe negative shocks tend to have higher “haircuts” than countries that face less severe shocks. I discuss in detail debt restructuring episodes in Argentina, Chile, Uruguay and Greece. The results suggest that the haircut imposed by Argentina in its 2005 restructuring (75%) was “excessively high.” The other episodes’ haircuts are consistent with the model.

JEL-codes: F34 F41 F65 G15 (search for similar items in EconPapers)
Date: 2015-02
New Economics Papers: this item is included in nep-lam and nep-opm
Note: IFM
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Citations: View citations in EconPapers (5)

Published as Sebastian Edwards, 2015. "Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean “Haircut” Excessive?," Open Economies Review, vol 26(5), pages 839-867.

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