IMF Working Papers

Costs of Sovereign Defaults: Restructuring Strategies, Bank Distress and the Capital Inflow-Credit Channel

By Tamon Asonuma, Marcos d Chamon, Aitor Erce, Akira Sasahara

March 25, 2019

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Tamon Asonuma, Marcos d Chamon, Aitor Erce, and Akira Sasahara. Costs of Sovereign Defaults: Restructuring Strategies, Bank Distress and the Capital Inflow-Credit Channel, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: 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.

Summary

Sovereign debt restructurings are associated with declines in GDP, investment, bank credit, and capital flows. The transmission channels and associated output and banking sector costs depend on whether the restructuring takes place preemptively, without missing payments to creditors, or whether it takes place after a default has occurred. Post-default restructurings are associated with larger declines in bank credit, an increase in lending interest rates, and a higher likelihood of triggering a banking crisis than pre-emptive restructurings. Our local projection estimates show large declines in GDP, investment, and credit amplified by severe sudden stops and transmitted through a “capital inflow-credit channel”.

Subject: Asset and liability management, Balance of payments, Banking crises, Capital inflows, Credit, Debt restructuring, Financial crises, Money, Sudden stops

Keywords: Banking crises, Banking Crisis, Banking sector, Capital inflows, Credit, Debt restructuring, Debt restructuring, Default restructuring, GDP Growth, Global, Growth rate, Inflows-to-GDP ratio, Investment, Local Projection, Net capital, Net capital capital inflow, Sovereign Debt, Sovereign Debt Restructurings, Sovereign Defaults, Sudden stops, WP

Publication Details

  • Pages:

    91

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/069

  • Stock No:

    WPIEA2019069

  • ISBN:

    9781498303255

  • ISSN:

    1018-5941

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