Sovereign Debt Workouts

Michael Chui and Prasanna Gai

in Private Sector Involvement and International Financial Crises

Published in print January 2005 | ISBN: 9780199267750
Published online July 2005 | e-ISBN: 9780191602504 | DOI:
Sovereign Debt Workouts

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Explains how policymakers must trade the ex-post costs of creditor coordination failure, which can help discipline sovereign debtors, against the ex-ante costs of debtor moral hazard. The threat of a liquidity crisis—a creditor run—is shown to be a powerful, albeit blunt, disciplining force in international capital markets, and the chapter explores the circumstances under which official intervention by the IMF can substitute for this discipline. The efficacy of collective action clauses as a means of ameliorating creditor coordination problems is also given a formal treatment.

Keywords: collective action clauses; costs of creditor coordination; creditor run; debtor moral hazard; IMF; liquidity crisis; sovereign debt

Chapter.  6619 words.  Illustrated.

Subjects: Financial Markets

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