Costs of Sovereign Defaults: Restructuring Strategies and Financial Intermediation

37 Pages Posted: 24 May 2021

See all articles by Tamon Asonuma

Tamon Asonuma

International Monetary Fund (IMF) Research Department

Marcos Chamon

International Monetary Fund (IMF) - Research Department

Aitor Erce

UPNA

Akira Sasahara

Keio University

Date Written: May 24, 2021

Abstract

Sovereign debt restructurings are associated with declines in the growth of GDP, investment, bank credit to the private sector and capital flows. Our empirical findings show that the intensity of these losses depends on two aspects: whether the restructuring preempts a default and the extent of the country’s reliance on bank intermediation. Post-default restructurings are associated with worse outcomes than restructurings that take place preemptively without missing payments to creditors and going into default. Much of that difference is driven by the particularly adverse effects experienced after post-default restructurings in countries with relatively larger banking sectors.

Keywords: Sovereign Debt; Sovereign Defaults; Sovereign Debt Restructurings; GDP Growth; Investment; Local Projection

JEL Classification: F34; F41; H63;

Suggested Citation

Asonuma, Tamon and Chamon, Marcos and Erce, Aitor and Sasahara, Akira, Costs of Sovereign Defaults: Restructuring Strategies and Financial Intermediation (May 24, 2021). Available at SSRN: https://ssrn.com/abstract=3851813 or http://dx.doi.org/10.2139/ssrn.3851813

Tamon Asonuma (Contact Author)

International Monetary Fund (IMF) Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Marcos Chamon

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-5867 (Phone)

Aitor Erce

UPNA ( email )

Pamplona
Spain

Akira Sasahara

Keio University ( email )

2-15-45 Mita, Ninato-ku
Tokyo 1088345
Japan

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