Sovereign Debt Relief and its Aftermath

Carmen Reinhart and Christoph Trebesch

No 5422, CESifo Working Paper Series from CESifo

Abstract: This paper studies sovereign debt relief in a long-term perspective. We quantify the relief achieved through default and restructuring in two distinct samples: 1920-1939, focusing on the defaults on official (government to government) debt in advanced economies after World War I; and 1978-2010, focusing on emerging market debt crises with private external creditors. Debt relief was substantial in both eras, averaging 21% of GDP in the 1930s and 16% of GDP in recent decades. We then analyze the aftermath of debt relief and conduct a difference-in-differences analysis around the synchronous war debt defaults of 1934 and the Baker and Brady initiatives of the 1980s/1990s. The economic landscape of debtor countries improves significantly after debt relief operations, but only if these involve debt write-offs. Softer forms of debt relief, such as maturity extensions and interest rate reductions, are not generally followed by higher economic growth or improved credit ratings.

Keywords: sovereign default; debt overhang; debt forgiveness; crisis resolution (search for similar items in EconPapers)
JEL-codes: E60 F30 H60 N00 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: SOVEREIGN DEBT RELIEF AND ITS AFTERMATH (2016)
Journal Article: Sovereign Debt Relief and Its Aftermath (2016)
Working Paper: Sovereign Debt Relief and Its Aftermath (2016)
Working Paper: Sovereign Debt Relief and Its Aftermath (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5422

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