A Delicate Equilibrium: Debt Relief and Default Penalties in an International Context

Guillermo Calvo

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Author: Mr. Guillermo Calvo¹

¹ 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund

Language:: English

Keywords:: BOOK; debt; debtor country; market; loan contract; borrower default; loan repayment; loan market; borrower's investment; Debt relief; Loans; Debt default; Personal income; Income inequality; Global

Abstract

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.

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Analytical Issues in Debt

Editor: Mr. Peter Wickham, Mr. Jacob A. Frenkel, and Mr. Michael P. Dooley

ISBN:: 9781557750419

Publication Date:: 15 Mar 1989

Publisher:: International Monetary Fund

DOI:: https://doi.org/10.5089/9781557750419.071

Pages:: 427

Abstract
I. A Theory of Penalties, Monitoring, and Default
II. Debt Relief
III. Conclusions
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