The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Debt relief and penalties are discussed in connection with sovereign-country loans. We focus on conditions for the existence of penalties that are too low for ensuring Pareto efficiency, and show the possible time inconsistency of optimal debt contracts. A methodology for ascertaining debt relief implicit in international loans is outlined.