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

Sebastian Edwards ()

Open Economies Review, 2015, vol. 26, issue 5, 839-867

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. Copyright Springer Science+Business Media New York 2015

Keywords: Debt; Sovereign; Default; Restructuring; Repudiation; Investors’ losses; Haircut; Argentina; Excusable default; Recovery rate; Greece; Chile; F340; F410; F650; G150 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:kap:openec:v:26:y:2015:i:5:p:839-867