Trade Costs of Sovereign Debt Restructurings: Does a Market-Friendly Approach Improve the Outcome?

By Tamon Asonuma, Marcos d Chamon, Akira Sasahara

November 15, 2016

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Tamon Asonuma, Marcos d Chamon, and Akira Sasahara. Trade Costs of Sovereign Debt Restructurings: Does a Market-Friendly Approach Improve the Outcome?, (USA: International Monetary Fund, 2016) 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

Sovereign debt restructurings have been shown to influence the dynamics of imports and exports. This paper shows that the impact can vary substantially depending on whether the restructuring takes place preemptively without missing payments to creditors, or whether it takes place after a default has occurred. We document that countries with post-default restructurings experience on average: (i) a more severe and protracted decline in imports, (ii) a larger fall in exports, and (iii) a sharper and more prolonged decline in both GDP, investment and real exchange rate than preemptive cases. These stylized facts are confirmed by panel regressions and local projection estimates, and a range of robustness checks including for the endogeneity of the restructuring strategy. Our findings suggest that a country’s choice of how to go about restructuring its debt can have major implications for the costs it incurs from restructuring.

Subject: Asset and liability management, Debt restructuring, Exchange rate arrangements, Exports, Foreign exchange, Imports, International trade, Real exchange rates

Keywords: Commodity exporter, Debt restructuring, Debt restructuring, Exchange rate, Exchange rate arrangements, Exports, GDP ratio, Global, Growth rate, Imports, Local Projections, Panel Regression, Real exchange rates, Real GDP, Sovereign Debt, Sovereign Debt Restructurings, Sovereign Defaults, Standard and Poor's, Trade, WP

Publication Details

Pages:

57
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/222
Stock No:

WPIEA2016222
ISBN:

9781475553857
ISSN:

1018-5941

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