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Analytics of sovereign debt restructuring

Andrew Haldane, Adrian Penalver (), Victoria Saporta and Hyun Song Shin

Bank of England working papers from Bank of England

Abstract: 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.

Date: 2003-10
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) Downloads
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