Sovereign Default, Debt Restructuring, and Recovery Rates: Was the Argentinean “Haircut” Excessive?

Edwards, Sebastián

doi:10.1007/s11079-015-9350-3

Cited by 8 publications

(2 citation statements)

References 18 publications

(20 reference statements)

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“…Recent literature analyses whether debt write-downs in sovereign debt restructuring episodes have been excessively high, low, or appropriate. The approach of Edwards (2015), for instance, focuses on a cross-country comparison of experiences, based on a sample that includes 180 restructuring episodes with private creditors from 1970 to 2010 (from Cruces and Trebesch, 2013). The evaluation of the appropriateness of a market haircut is done by comparing residuals between actual market haircuts and predicted market haircuts.…”

Section: Relation To the Literaturementioning

confidence: 99%

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Assessing the Appropriate Size of Relief in Sovereign Debt Restructuring

Guzmán

Lombardi²

2017

SSRN Journal

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This paper offers a principles based approach for assessing the appropriate size of debt relief in sovereign debt restructuring initiatives. We show how to calculate the amount of debt relief that restores sustainability with high probability subject to the satisfaction of sovereign debt restructuring principles. The amount of debt relief is deemed appropriate if it leads to trajectories of economically and politically feasible fixed points for the primary surplus to GDP ratio that satisfy the government's intertemporal budget constraint in a "high" percent of possible future states of nature. Economic feasibility is defined by natural economic constraints, and political feasibility is defined by the constraints imposed by the restructuring principles. We also provide evidence that shows that sovereign debt restructuring episodes since 1970 have been often followed by subsequent restructurings or defaults shortly afterwards, suggesting that relief amounts to date may have been 'too little.Este trabajo presenta un enfoque basado en principios para computar la quita de deuda apropriada en procesos de reestructuración de deuda soberana. Se muestra cómo calcular el monto de reducción de deuda que restaura la condición de sosteniblidad con alta probabilidad bajo la premisa de satisfacer un conjunto de restricciones impuestas por los principios que se siguen en el proceso de reestructuración. El tamaño de la quita se considera apropiado si conduce a la existencia de trayectorias de superávits fiscales primarios como ratio del PIB que son puntos fijos económica y políticamente factibles, y que satisfacen la restricción intertemporal de prespuesto del gobierno en un porcentaje "alto" de los posibles estados de la naturaleza. La factibilidad económica se define a partir de restricciones económicas, y la factibilidad política se define en función de las restricciones que imponen los principios de la reestructuración. También se muestra que desde 1970 los procesos de reestructuración soberana han sido seguidos poco tiempo después por una nueva reestructuración o default en un porcentaje alto de casos, lo que sugiere que el alivio de deuda se ha dado en la forma de "demasiado poco".

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Section: Relation To the Literaturementioning

confidence: 99%

“…Mathematically, finding those consistent policy paths is equivalent to finding the trajectories of fixed points for the relationship between policies and 5 See, for example, Edwards (2015) and Cruces and Levy Yeyati (2016). 6 In the current practice, models for debt sustainability assessments are not always revealed.…”

Section: Introductionmentioning

confidence: 99%