Analytics of sovereign debt restructuring
Adrian Penalver (),
Victoria Saporta and
Hyun Song Shin
Bank of England working papers from Bank of England
Over the past few years there has been an active debate among policy-makers on appropriate mechanisms for restructuring sovereign debt, particularly international bonds. In this paper a simple theoretical model is developed to analyse the merits of these proposals. The analysis suggests that collective action clauses (CACs) can resolve the inefficiencies caused by intra-creditor coordination problems, provided that all parties have complete information about each others preferences. In such a world, statutory mechanisms are unnecessary. This is no longer the case, however, when the benefits from reaching a restructuring agreement are private information to the debtor and its creditors. In this case, the inefficiencies induced by strategic behaviour the debtor-creditor bargaining problem cannot be resolved by the parties themselves: removing these inefficiencies would require the intervention of a third party.
New Economics Papers: this item is included in nep-fin and nep-rmg
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Journal Article: Analytics of sovereign debt restructuring (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:203
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