The Cost of Aggressive Sovereign Debt Policies: How Much is theprivate Sector Affected?

Christoph Trebesch

No 2009/029, IMF Working Papers from International Monetary Fund

Abstract: This paper proposes a new empirical measure of cooperative versus conflictual crisis resolution following sovereign default and debt distress. The index of government coerciveness is presented as a proxy for excusable versus inexcusable default behaviour and used to evaluate the costs of default for the domestic private sector, in particular its access to international debt markets. Our findings indicate that unilateral, aggressive sovereign debt policies lead to a strong decline in corporate access to external finance (loans and bond issuance). We conclude that coercive government actions towards external creditors can have strong signalling effects with negative spillovers on domestic firms. "Good faith" debt renegotiations may be crucial to minimize the domestic costs of sovereign defaults.

Keywords: WP; debt policy; debt crisis; emerging market; crisis episode; Sovereign Default; External Debt; Crisis Resolution; Reputation Spillovers; issuance data; debt flow; default dummy; debt exchange; inexcusable debt repudiation; debt crisis period; debt issuance; debt contract; debt crisis effect; crisis effect; debt crisis situation; Debt default; Credit; Global (search for similar items in EconPapers)
Pages: 37
Date: 2009-02-01
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Citations: View citations in EconPapers (24)

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