Sovereign Debt Relief and Its Aftermath

Carmen Reinhart and Christoph Trebesch

Munich Reprints in Economics from University of Munich, Department of Economics

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. (JEL: E6, F3, N0, H6)

Date: 2016
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Published in Journal of the European Economic Association 1 14(2016): pp. 215-251

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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 (2015)
Working Paper: Sovereign Debt Relief and Its Aftermath (2015)
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