Sovereign Debt Restructuring Mechanisms--Unintended Consequences of the 2002 IMF Proposal

John Crean

Working Papers from University of Toronto, Department of Economics

Abstract: The IMF's 2002 proposal for a new Sovereign Debt Restructuring Mechanism (SDRM) attracted considerable criticism from both emerging market sovereign debt issuers and from private sector financial institutions. This paper outlines the features of the SDRM and its advantages as perceived by the Official Sector. The paper explains the criticisms leveled by emerging market and private sector players. It analyses the likely market responses of lenders in the period prior to any threatened filing under the SDRM and shows how these responses are likely to reduce lending to risky sovereigns and to provoke earlier defaults. With such responses, the expected benefits of any SDRM in terms of the reduction in the frequency and severity of sovereign crises are likely to evaporate.

Keywords: SDRM; Sovereign Debt; Sovereign Risk; International Capital Flows; Trade Finance; Moratorium; Foreign Exchange Controls (search for similar items in EconPapers)
JEL-codes: F21 F32 F33 F34 F55 (search for similar items in EconPapers)
Pages: Unknown pages
Date: 2012-04-13
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Persistent link: https://EconPapers.repec.org/RePEc:tor:tecipa:tecipa-452

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