Sovereign Debt Standstills

Juan C. Hatchondo, Leonardo Martinez and Cesar Sosa-Padilla

No 28292, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: As a response to the economic difficulties triggered by the COVID-19 pandemic, the G20 implemented the Debt Service Suspension Initiative (DSSI), a standstill or sus- pension of official bilateral sovereign debt payments for some of the poorest countries. The G20 and others also called on private creditors to offer comparable terms but this did not materialize. We first show that a standard default model can account for the decline in sovereign spreads triggered by the DSSI. The model also accounts for the private creditors’ reluctance to participate in a debt standstill: Except when it avoids a default, a private-creditor standstill implies sizable capital losses for debt holders. Furthermore, while sovereign debt standstill proposals emphasize debt payment suspensions without write-offs on the face value of debt obligations, we find that complementing private-creditor standstills with write-offs could reduce debt holders’ losses and simultaneously increase sovereign welfare gains.

JEL-codes: F34 F41 (search for similar items in EconPapers)
Date: 2020-12
New Economics Papers: this item is included in nep-opm
Note: EFG IFM ME
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Sovereign debt standstills (2021)
Working Paper: Sovereign Debt Standstills (2020)
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