Managing financial crises in emerging market economies - experience with the involvement of private sector creditors

Christian Thimann, John Drage, Minna Nikitin, Christian Just, Rolf Pauli, Marco Committeri, Pierre-François Weber, Santiago Fernández de Lis, Stephan von Stenglin, Ole Hollensen, Rita Bessone Basto, Regine Wölfinger and Thierry Bracke

No 32, Occasional Paper Series from European Central Bank

Abstract: Financial crises in emerging market economies are often accompanied by difficulties of the sovereign to honour its contractual obligations. The official sector may reduce the likelihood of a disorderly outcome by extending financial assistance but there are limits to official sector involvement, not least because the potential volume of IMF lending is small compared to private capital flows and because a large "bail out" by the official sector would lead to moral hazard. For both these reasons - limited official funds and moral hazard - private sector creditors need to share some of the financial burden and thereby actively get involved in the management of financial crises in emerging market economies. The purpose of this report is to review the instruments that may promote such private creditor involvement as well as to provide a stock-taking of past experience and identify areas of possible improvement to the framework for crisis resolution. JEL Classification: F33, F34

Keywords: bond restructuring; emerging markets; Financial crises; international financial architecture; moral hazard; sovereign default (search for similar items in EconPapers)
Date: 2005-07
Note: 76331
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbops:200532

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