Constrained Discretion and Collective Action Problems: Reflections on the Resolution of International Financial Crises

Arminio Fraga and Daniel Gleizer

No 34, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: The purpose of the paper is to highlight some essential features of an approach to the resolution of international financial crises, based upon an assessment of what has been essential for restoring normal relations between debtors and creditors in recent crises. We focus on the nexus between the debtor and the private creditorsand on what they can do together to solve the collective action problems that bedevil the resolution of crises, recognizing that the official sector has a catalytic role to play. This contrasts with the emphasis on the relationship between the official sector and the debtor, and on the connection between the official sector and the private sector. The essence of a lasting solution is finding practical ways to enable debtors and creditors to conclude and implement explicit and implicit agreements relating to the amount and timing of credit flows and debt repayments.

Date: 2001-11
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