Debtor (Non-)Participation in Sovereign Debt Relief: A Real Option Approach

By Danny Cassimon, Dennis Essers, Andrea F Presbitero

September 8, 2023

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Format: Chicago

Danny Cassimon, Dennis Essers, and Andrea F Presbitero. Debtor (Non-)Participation in Sovereign Debt Relief: A Real Option Approach, (USA: International Monetary Fund, 2023) accessed December 21, 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

Developing countries have recently proved reluctant to participate in sovereign debt moratoria and debt relief initiatives. We argue that debtors' (non-)participation decisions can be understood through the lens of real options. Eligible countries compare the net benefits of participating in a debt relief initiative now with the value of waiting to potentially execute their participation option later, when they may have more information on the benefits and costs. We corroborate the real option framing with anecdotal evidence and through a survival analysis that exploits cross-country and time variation in the requests to participate in the Debt Service Suspension Initiative (DSSI), which provided temporary debt moratoria during the COVID-19 pandemic. Structured along the policy levers suggested by the real option framework, we discuss a number of ways in which participation in debt relief initiatives can be made more attractive to debtor countries.

Subject: Asset and liability management, Credit ratings, Debt Relief, Debt restructuring, Debt service, Debt sustainability, External debt, Money

Keywords: Common Framework, Credit ratings, Debt relief, Debt relief initiative, Debt restructuring, Debt service, Debt Service Suspension Initiative, Debt sustainability, Debt treatment, Global, IMF working paper 23/187, Option framework, Participation option, Real options, Sovereign debt, Sovereign debt relief, Survival analysis

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/187
Stock No:

WPIEA2023187
ISBN:

9798400248504
ISSN:

1018-5941

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