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

February 1, 2009

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Format: Chicago

Christoph Trebesch. The Cost of Aggressive Sovereign Debt Policies: How Much is theprivate Sector Affected?, (USA: International Monetary Fund, 2009) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Credit, Debt default, Debt restructuring, External debt, Financial crises, Money, Public debt

Keywords: Credit, Crisis effect, Crisis episode, Crisis Resolution, Debt contract, Debt crisis, Debt crisis effect, Debt crisis period, Debt crisis situation, Debt default, Debt exchange, Debt flow, Debt issuance, Debt policy, Default dummy, Emerging market, External Debt, Global, Inexcusable debt repudiation, Issuance data, Reputation Spillovers, Sovereign Default, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/029
Stock No:

WPIEA2009029
ISBN:

9781451871760
ISSN:

1018-5941

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