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Trade Costs of Sovereign Debt Restructurings: Does a Market-Friendly Approach Improve the Outcome?
Author: Mr. Tamon Asonuma, Mr. Marcos d Chamon, and Akira Sasahara
Series:
IMF Working Papers
Volume/Issue:
Volume 2016: Issue 222
Language:
English
Publication Date:
15 Nov 2016
DOI:
https://doi.org/10.5089/9781475553857.001
ISBN:
9781475553857
ISSN:
1018-5941
Pages:
57
Keywords:
WP; real GDP; exchange rate; Sovereign Debt; Sovereign Defaults; Sovereign Debt Restructurings; Trade; Panel Regression; Local Projections; debt restructuring; growth rate; GDP ratio; Standard and Poor's; commodity exporter; Debt restructuring; Exports; Imports; Real exchange rates; Exchange rate arrangements; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Sovereign debt restructurings have been shown to influence the dynamics of imports and exports. This paper shows that the impact can vary substantially depending on whether the restructuring takes place preemptively without missing payments to creditors, or whether it takes place after a default has occurred. We document that countries with post-default restructurings experience on average: (i) a more severe and protracted decline in imports, (ii) a larger fall in exports, and (iii) a sharper and more prolonged decline in both GDP, investment and real exchange rate than preemptive cases. These stylized facts are confirmed by panel regressions and local projection estimates, and a range of robustness checks including for the endogeneity of the restructuring strategy. Our findings suggest that a country’s choice of how to go about restructuring its debt can have major implications for the costs it incurs from restructuring.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund