IMF Working Papers

Sovereign Debt

By Leonardo Martinez, Francisco Roch, Francisco Roldán, Jeromin Zettelmeyer

June 17, 2022

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Format: Chicago

Leonardo Martinez, Francisco Roch, Francisco Roldán, and Jeromin Zettelmeyer. Sovereign Debt, (USA: International Monetary Fund, 2022) accessed November 7, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper surveys the literature on sovereign debt from the perspective of understanding how sovereign debt differs from privately issue debt, and why sovereign debt is deemed safe in some countries but risky in others. The answers relate to the unique power of the sovereign. One the one hand, a sovereign has the power to tax, making debt relatively safe; on the other, it also has control over its territory and most of its assets, making debt enforcement difficult. The paper discusses debt contracts and the sovereign debt market, sovereign debt restructurings, and the empirical and theoretical literatures on the costs and causes of defaults. It describes the adverse impact of sovereign default risk on the issuing countries and what explains this impact. The survey concludes with a discussion of policy options to reduce sovereign risk, including fiscal frameworks that act as commitment devices, state-contingent debt, and independent and credible monetary policy.

Subject: Debt default, External debt, Financial crises, Financial markets, Fiscal policy, Fiscal rules, Public debt, Securities markets

Keywords: Capital market exclusion, Costs of Sovereign Default, Debt contract, Debt Default, Debt Restructuring, Default decision, Default event, Fiscal Frameworks, Fiscal rules, Global, Liquid asset, Market value, Original Sin, Payment terms, Political Defaults, Safe Debt, Securities markets, Short-term debt, Sovereign Debt, Sovereign default, State Contingent Debt

Publication Details

  • Pages:

    46

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2022/122

  • Stock No:

    WPIEA2022122

  • ISBN:

    9798400213250

  • ISSN:

    1018-5941

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