EconPapers    
Economics at your fingertips  
 

Selective sovereign defaults

Aitor Erce ()

No 127, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: Breaches in intercreditor equity are common ground during sovereign debt restructurings. In this paper I explore residence-based breaches by studying patterns of discrimination between residents and foreign creditors during debt restructurings. I frame the analysis with a simple model of a government's strategic decision to differentiate between the servicing of its domestic and its external debt. In the model, the basic trade-off facing the authorities is to default on external debt and in so doing restricting private access to international capital markets or to default on domestic debt, thereby curtailing the banking sector's capacity to lend. I test the model's conclusions by analyzing 11 recent sovereign restructurings. After distinguishing neutral cases where the sovereign treated creditors equitably and instances of discrimination against residents and foreigners, I present evidence in support of the model. The origin of liquidity pressures, the robustness and depth of the banking system and the extent of the corporate sector's reliance on foreign capital markets vis-a-vis domestic credit markets have the potential to explain the patterns of discrimination observed in the data.

Keywords: Debt; Debts, External; Liquidity (Economics); Banks and banking; Markets (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed

Downloads: (external link)
http://www.dallasfed.org/assets/documents/institute/wpapers/2012/0127.pdf (application/pdf)

Related works:
Working Paper: Selective Sovereign Defaults (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:127

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Globalization Institute Working Papers from Federal Reserve Bank of Dallas Contact information at EDIRC.
Bibliographic data for series maintained by Amy Chapman ().

 
Page updated 2019-11-10
Handle: RePEc:fip:feddgw:127