EconPapers    
Economics at your fingertips  
 

On the Benefits of Repaying

Paolo Manasse (), Ugo Panizza, Francesca Caselli and Matilde Faralli

No 2021/233, IMF Working Papers from International Monetary Fund

Abstract: This paper studies whether countries benefi t from servicing their debts during times of widespread sovereign defaults. Colombia is typically regarded as the only large Latin American country that did not default in the 1980s. Using archival research and formal econometric estimates of Colombia's probability of default, we show that in the early 1980s Colombia's fundamentals were not signifi cantly different from those of the Latin American countries that defaulted on their debts. We also document that the different path chosen by Colombia was due to the authorities' belief that maintaining a good reputation in the international capital market would have substantial long-term payoffs. We show that the case of Colombia is more complex than what it is commonly assumed. Although Colombia had to re-profi le its debts, high-level political support from the US allowed Colombia do to so outside the standard framework of an IMF program. Our counterfactual analysis shows that in the short to medium run, Colombia benefit ted from avoiding an explicit default. Speci fically, we find that GDP growth in the 1980s was higher than that of a counterfactual in which Colombia behaved like its neighboring countries. We also test whether Colombia's behavior in the 1980s led to long-term reputational benefi ts. Using an event study based on a large sudden stop, we find no evidence for such long-lasting reputational gains.

Keywords: Sovereign Debt; Default; Reputation; probability of default; Colombia's behavior; Colombia's probability; default probability; adjustment program; market access; International capital markets; Debt default; Caribbean; Global (search for similar items in EconPapers)
Pages: 50
Date: 2021-09-10
New Economics Papers: this item is included in nep-his and nep-lam
References: Add references at CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=465418 (application/pdf)

Related works:
Working Paper: On the Benefits of Repaying (2021) Downloads
Working Paper: On the Benefits of Repaying (2021) Downloads
Working Paper: On the Benefits of Repaying (2021) 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:imf:imfwpa:2021/233

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().

 
Page updated 2022-01-16
Handle: RePEc:imf:imfwpa:2021/233