Sovereign Liquidity Crisis: The Strategic Case for a Payments Standstill

Marcus Miller and Lei Zhang ()

CSGR Working papers series from Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick

Abstract: Is sovereign borrowing so different from corporate debt that there is no need for bankruptcy- style procedures to protect debtors? With the waiver of immunity, sovereign debtors who already face severe disruption from short-term creditors grabbing their currency reserves are also exposed to litigious creditors trying to seize what assets they can in a 'race of the vultures'. Shielding sovereign debtors from inter-creditor conflict by authorised standstills on payments doubt-less runs some risk of debtor's moral hazard. But the lack of an orderly procedure for resolving sovereign liquidity crises means that the IMF is de facto forced to bail out countries in trouble. This leads to both debtor and creditor moral hazard, as investors lend without monitoring, knowing that their investments are essentially guaranteed. The strategic case for legalising standstills is to rescue the international financial system from this 'time consistent' trap.

Keywords: Sovereign borrowing; liquidity crises; moral hazard; time consistency; international institutions. (search for similar items in EconPapers)
Date: 1999-06
New Economics Papers: this item is included in nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: Sovereign Liquidity Crises: The Strategic Case for a Payments Standstill (2000)
Working Paper: Sovereign Liquidity Crisis: The Strategic Case for A Payments Standstill (1999)
Working Paper: Sovereign Liquidity Crises: the Strategic Case for a Payments Standstill (1998)
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