A Delicate Equilibrium: Debt Relief and Default Penalties in an International Context
  • 1 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund


Debt relief and penalties are discussed in connection with sovereign-country loans. The paper focuses on conditions for the existence of penalties that are too low for ensuring Pareto efficiency and shows the possible time inconsistency of optimal debt contracts. A methodology for ascertaining debt relief implicit in international loans is outlined.