How to Rethink Sovereign Bankruptcy

Patrick Bolton and David A. Skeel, Jr.

in Overcoming Developing Country Debt Crises

Published in print February 2010 | ISBN: 9780199578788
Published online May 2010 | e-ISBN: 9780191723049 | DOI:

Series: Initiative for Policy Dialogue

How to Rethink Sovereign Bankruptcy

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This chapter suggests investigating a new bankruptcy approach for resolving sovereign debt crises. While some of the basic ideas have been presented in other papers, the innovation introduced here is to put the IMF at its center. One key to the proposal is that instead of the IMF lending only its own funds to the distressed sovereign, which it can no longer do in amounts sufficient to counter international financial market panics, it would also be empowered to authorize private creditors to extend new credits that would have higher repayment priority than already outstanding debt, as is done in corporate bankruptcy cases. It is envisaged that amounts of such credit above some modest level would have to be approved by the defaulted creditors and that contributing private creditors would also need to be brought into the negotiations over the rescue package.

Keywords: IMF; sovereign bankruptcy; international lender of last resort; international monetary financial committee

Chapter.  17755 words. 

Subjects: Macroeconomics and Monetary Economics

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