## _wp0929

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---

### Objective and key variables
- Research question: To what extent do sovereign debt policies and crisis resolution patterns affect the domestic private sector’s access to international debt markets?
- Key explanatory variable: Index of coerciveness (Enderlein, Müller, and Trebesch (2007))
  - Range: 1 to 10 (1 = fully cooperative policy stance; 10 = highest degree of coerciveness).
  - Construction: additive sum of nine binary sub-indicators (lower bound of 1).
  - "High Coerciveness" dummy: index value is 5 or higher.
  - "Low Coerciveness" dummy: index values of 1, 2 or 3.
- Dependent variable: total volume of foreign corporate bond issues and foreign corporate syndicated loan contracts for 32 emerging economies (January 1980–December 2004).
  - Measured as monthly percentage deviation from the country-specific mean (issuance volumes deflated by U.S. CPI).

### Methodology overview
- Baseline specification: fixed effects regression
  - Equation (1): C_it = α_i + α_t + β COERC_it + γ X'_it + u_it, with robust errors clustered by country.
  - Lags of COERC up to three years included to capture 1–12, 13–24, and 25–36 month post-agreement effects.
- Crisis measurement: sovereign defaults towards private creditors only (restructurings with official creditors excluded from main index coding).
  - Start of debt distress: month of first missed payments beyond grace period or beginning of debt talks.
  - End of crisis: final agreement of a debt restructuring.
- Controls: country and year fixed effects plus a large set of economic, political, and global controls (PCA indices based on Arteta and Hale (2008); ICRG political risk; political turmoil event PCA; currency and banking crisis dummies; natural disasters; industry dummies for oil & gas, chemical, and mining).

### Principal empirical findings
- Baseline coefficient estimates (selected):
  - Index of Coerciveness (Table 3, column 1): -13.06*** (robust SE (3.86)).
  - High Coerciveness (Dummy) (Table 3, column 2): -57.52*** (robust SE (21.74)).
  - Lagged Coerciveness (1 Year) (Table 3, column 1): -23.72*** (robust SE (7.80)).
  - Lagged Coerciveness (2 Year) (Table 3, column 1): -16.46*** (robust SE (5.94)).
  - Default Dummy (Table 4, column 1): -39.54* (robust SE (20.47)).
- Magnitude and interpretation:
  - Periods of particularly aggressive debt policies are associated with a 40 percent decrease in corporate external borrowing (text summary).
  - Governments enforcing a fully unilateral, non-negotiated debt restructuring trigger a particularly strong drop in private sector external borrowing—of up to 80 percent over and above the debt crisis effect per se (text summary).
  - When the coerciveness index is included jointly with the default dummy, the default dummy becomes insignificant—suggesting the type of default and crisis resolution policy (not default per se) drives adverse private-sector outcomes.
- Time profile:
  - Debt policies in default have a strong impact for up to two years after the crisis.
  - Lagged index values are highly significant for the first 12 months after restructuring; effect weakens in the second year and vanishes by the third year (lagged values for the third year are not significant).

### Effects of individual coercive sub-indicators (selected)
- Payment-behavior sub-indicators (Table 5, sub-sample of default episodes):
  - Payments Missed Beyond Grace: -48.03*** (robust SE (18.06)).
  - Unilateral Payment Suspension: -33.85* (robust SE (17.60)).
  - Full Suspension of Interest Payments: -21.06* (robust SE (11.37)).
  - Capital and exchange controls (dummy): insignificant (Table 5).
- Negotiation-behavior sub-indicators (Table 5):
  - Breakdown of Negotiations: -15.01* (robust SE (8.95)).
  - Explicit Moratorium Declaration: -20.08* (robust SE (11.08)).
  - Data Disclosure Problems and Explicit Threats to Repudiate: insignificant.
  - Forced and Non-Negotiated Restructurings (Table 5, column for Forced Restructurings): -86.93*** (robust SE (32.73)) — the single largest negative coefficient identified.

### Robustness checks and sample splits
- Results robust to:
  - Inclusion of systemic sudden stops (Cavallo and Frankel (2007)) (Table 6, column 1).
  - Random effects estimation with World Bank region dummies (Table 6, column 2).
  - Controlling for official creditor defaults and Paris Club negotiations (Table 6, column 3).
  - Separate estimation for 1980s debt crises and post-1990 period (Table 6, columns 4 and 5): index significant in both sub-periods, with stronger effects post-1990.
  - Excluding major defaulters (Argentina, Brazil, Mexico, Russia) or excluding Middle-Eastern oil exporters or former communist countries: results remain similar.
  - Re-estimation with quarterly data for 1990s/2000s and alternative push-pull factors: coerciveness index remains highly significant (text notes: results not reported but available upon request).
- Additional robustness notes:
  - Political risk (ICRG) and sovereign credit rating (IIR) included; coerciveness index remains significant, indicating explanatory power beyond political risk and sovereign ratings.
  - Currency Crisis: -33.06*** (robust SE (12.55)) in baseline specification (Table 3, column 1).
  - Banking Crisis: typically negative but insignificantly estimated in many specifications.

### Causal interpretation and channels
- Evidence consistent with adverse spillovers from sovereign coercive policies to private-sector external borrowing.
- Channels:
  - Supply-side: negative investor reaction, higher country risk premia, withdrawal or reduction of capital supply to domestic firms.
  - Demand-side: output losses, lower domestic demand, banking sector stress reducing firm demand for credit.
- Paper’s econometric setup cannot fully disentangle supply vs. demand channels, but several findings point toward a dominant supply-channel role (e.g., very large negative effect of forced non-negotiated restructurings).

### Policy implications and conclusions
- Aggressive debt policies and coercive government behavior during sovereign debt crises materially reduce corporate access to external credit, with effects lasting up to two years.
- Particular actions that are especially costly for private-sector market access:
  - Payment moratoria and enforced, non-negotiated restructurings (largest negative impacts).
  - Unilateral payment suspensions and full suspension of interest payments.
- Policy recommendation (as interpreted by the paper):
  - Governments should consider the domestic economic costs of non-compliant or coercive debt restructuring strategies.
  - "Good faith" debt restructurings and cooperative engagement with private creditors may help minimize negative spillovers to domestic corporations.

*Source: _wp0929 - 6. Robustness Tests and REFERENCES (IMF working paper content provided).*

### References..............................................................................................................

### References

### Tables

- 1. Emerging Market Countries Included in the Estimations....................................................23
- 2. List of Control Variables .....................................................................................................24
- 3. Effect of Aggressive Debt Policies on Total Amount Borrowed ........................................25
- 4. Default Effects and Aggressive Debt Policies During Default............................................26
- 5. Effect of Individual Coercive Actions (9 Sub-Indicators) ...................................................27

*Source: _wp0929 - References (PDF).*

### 6. Robustness Tests ....................................................................................................

### _wp0929 - 6. Robustness Tests

### Objective and key variables
- Research question: To what extent do sovereign debt policies and crisis resolution patterns affect the domestic private sector’s access to international debt markets?
- Key explanatory variable: Index of coerciveness (Enderlein, Müller, and Trebesch (2007))
  - Range: 1 to 10 (1 = fully cooperative policy stance; 10 = highest degree of coerciveness).
  - Construction: additive sum of nine binary sub-indicators (lower bound of 1).
  - "High Coerciveness" dummy: index value is 5 or higher.
  - "Low Coerciveness" dummy: index values of 1, 2 or 3.
- Dependent variable: total volume of foreign corporate bond issues and foreign corporate syndicated loan contracts for 32 emerging economies (January 1980–December 2004).
  - Measured as monthly percentage deviation from the country-specific mean (issuance volumes deflated by U.S. CPI).

### Methodology overview
- Baseline specification: fixed effects regression
  - Equation (1): C_it = α_i + α_t + β COERC_it + γ X'_it + u_it, with robust errors clustered by country.
  - Lags of COERC up to three years included to capture 1–12, 13–24, and 25–36 month post-agreement effects.
- Crisis measurement: sovereign defaults towards private creditors only (restructurings with official creditors excluded from main index coding).
  - Start of debt distress: month of first missed payments beyond grace period or beginning of debt talks.
  - End of crisis: final agreement of a debt restructuring.
- Controls: country and year fixed effects plus a large set of economic, political, and global controls (PCA indices based on Arteta and Hale (2008); ICRG political risk; political turmoil event PCA; currency and banking crisis dummies; natural disasters; industry dummies for oil & gas, chemical, and mining).

### Principal empirical findings
- Baseline coefficient estimates (selected):
  - Index of Coerciveness (Table 3, column 1): -13.06*** (robust SE (3.86)).
  - High Coerciveness (Dummy) (Table 3, column 2): -57.52*** (robust SE (21.74)).
  - Lagged Coerciveness (1 Year) (Table 3, column 1): -23.72*** (robust SE (7.80)).
  - Lagged Coerciveness (2 Year) (Table 3, column 1): -16.46*** (robust SE (5.94)).
  - Default Dummy (Table 4, column 1): -39.54* (robust SE (20.47)).
- Magnitude and interpretation:
  - Periods of particularly aggressive debt policies are associated with a 40 percent decrease in corporate external borrowing (text summary).
  - Governments enforcing a fully unilateral, non-negotiated debt restructuring trigger a particularly strong drop in private sector external borrowing—of up to 80 percent over and above the debt crisis effect per se (text summary).
  - When the coerciveness index is included jointly with the default dummy, the default dummy becomes insignificant—suggesting the type of default and crisis resolution policy (not default per se) drives adverse private-sector outcomes.
- Time profile:
  - Debt policies in default have a strong impact for up to two years after the crisis.
  - Lagged index values are highly significant for the first 12 months after restructuring; effect weakens in the second year and vanishes by the third year (lagged values for the third year are not significant).

### Effects of individual coercive sub-indicators (selected)
- Payment-behavior sub-indicators (Table 5, sub-sample of default episodes):
  - Payments Missed Beyond Grace: -48.03*** (robust SE (18.06)).
  - Unilateral Payment Suspension: -33.85* (robust SE (17.60)).
  - Full Suspension of Interest Payments: -21.06* (robust SE (11.37)).
  - Capital and exchange controls (dummy): insignificant (Table 5).
- Negotiation-behavior sub-indicators (Table 5):
  - Breakdown of Negotiations: -15.01* (robust SE (8.95)).
  - Explicit Moratorium Declaration: -20.08* (robust SE (11.08)).
  - Data Disclosure Problems and Explicit Threats to Repudiate: insignificant.
  - Forced and Non-Negotiated Restructurings (Table 5, column for Forced Restructurings): -86.93*** (robust SE (32.73)) — the single largest negative coefficient identified.

### Robustness checks and sample splits
- Results robust to:
  - Inclusion of systemic sudden stops (Cavallo and Frankel (2007)) (Table 6, column 1).
  - Random effects estimation with World Bank region dummies (Table 6, column 2).
  - Controlling for official creditor defaults and Paris Club negotiations (Table 6, column 3).
  - Separate estimation for 1980s debt crises and post-1990 period (Table 6, columns 4 and 5): index significant in both sub-periods, with stronger effects post-1990.
  - Excluding major defaulters (Argentina, Brazil, Mexico, Russia) or excluding Middle-Eastern oil exporters or former communist countries: results remain similar.
  - Re-estimation with quarterly data for 1990s/2000s and alternative push-pull factors: coerciveness index remains highly significant (text notes: results not reported but available upon request).
- Additional robustness notes:
  - Political risk (ICRG) and sovereign credit rating (IIR) included; coerciveness index remains significant, indicating explanatory power beyond political risk and sovereign ratings.
  - Currency Crisis: -33.06*** (robust SE (12.55)) in baseline specification (Table 3, column 1).
  - Banking Crisis: typically negative but insignificantly estimated in many specifications.

### Causal interpretation and channels
- Evidence consistent with adverse spillovers from sovereign coercive policies to private-sector external borrowing.
- Channels:
  - Supply-side: negative investor reaction, higher country risk premia, withdrawal or reduction of capital supply to domestic firms.
  - Demand-side: output losses, lower domestic demand, banking sector stress reducing firm demand for credit.
- Paper’s econometric setup cannot fully disentangle supply vs. demand channels, but several findings point toward a dominant supply-channel role (e.g., very large negative effect of forced non-negotiated restructurings).

### Policy implications and conclusions
- Aggressive debt policies and coercive government behavior during sovereign debt crises materially reduce corporate access to external credit, with effects lasting up to two years.
- Particular actions that are especially costly for private-sector market access:
  - Payment moratoria and enforced, non-negotiated restructurings (largest negative impacts).
  - Unilateral payment suspensions and full suspension of interest payments.
- Policy recommendation (as interpreted by the paper):
  - Governments should consider the domestic economic costs of non-compliant or coercive debt restructuring strategies.
  - "Good faith" debt restructurings and cooperative engagement with private creditors may help minimize negative spillovers to domestic corporations.

*Source: _wp0929 - 6. Robustness Tests (IMF working paper content provided).*

### REFERENCES

### _wp0929 - REFERENCES

### Scope and topics covered
- Bibliographic compilation focused on sovereign debt, sovereign default, debt restructuring, and related macrofinancial crises.
- Recurring themes: sovereign debt as contingent claims, sovereign default costs, debt restructuring mechanics (including buybacks, swaps, haircuts), private sector involvement in crisis resolution, creditor coordination, market access and exclusion, credit risk measurement (including credit default swaps and contingent-claim approaches), and systemic banking/financial crises.

### Key authors, institutions, and publication outlets
- Frequent contributors and institutions:
  - Authors: Guillermo A. Calvo; Jeffrey A. Frankel; Carmen M. Reinhart; Kenneth S. Rogoff; Jeromin Zettelmeyer; Federico Sturzenegger; Patrick Honohan; Luc Laeven; Eduardo Borensztein; Ugo Panizza; Jonathan Eaton; Maurice Obstfeld; Alan M. Taylor; Dale F. Gray; Robert C. Merton; Zvi Bodie; Hyun Song Shin.
  - Institutions and series: IMF Working Papers; NBER Working Papers; IMF Occasional Papers; Journal of International Economics; Journal of Political Economy; American Economic Review; Journal of International Money and Finance; World Bank “Global Development Finance” series; Banco de España Occasional Papers; ECB Occasional Paper Series; Institute of International Finance.
- Specific publication identifiers preserved as listed:
  - IMF Working Papers 06/254, 08/238, 07/75, 07/58, 04/221, 04/44, 07/148, 07/58, 07/148.
  - NBER Working Paper 14026, 12101, 13861, 13607, 7531, 10957, 8634.
  - IMF Occasional Papers 255.
  - IMF Staff Papers, Vol. 55(1), pp. 109–148.
  - Journal volumes and issues preserved exactly where provided (for example, Journal of International Economics, Vol. 65(2), pp.297–314; Journal of Political Economy, Vol. 97(1), pp. 155–78).

### Methodological and empirical approaches represented
- The referenced works employ a mix of:
  - Theoretical models of sovereign debt, default, reputation, and renegotiation (e.g., Bulow and Rogoff, 1989; Cole and Kehoe, 1998; Grossman and Van Huyck, 1988; Bulow, Rogoff, Eaton).
  - Contingent-claims and credit-risk pricing frameworks (e.g., Alfaro and Kanczuk, 2005; Gapen et al., 2008; Gray, Merton, and Bodie, 2007).
  - Event and case-study analyses of debt restructurings and capital-market exclusion (e.g., Díaz-Cassou et al., 2008a and 2008b; Richmond and Dias, 2008; Sturzenegger and Zettelmeyer, 2007).
  - Empirical work on sovereign spreads, market access determinants, and the effects of private foreign borrowing (e.g., Gelos, Sandleris, and Sahay, 2004; Celasun and Harms, 2007; Fostel and Kaminsky, 2007).
  - Analyses of institutional and policy frameworks: IMF policies on lending into arrears (1999; 2002) and studies on private sector involvement and principles for debt restructuring (Institute of International Finance, 2006; Cline, 2004; Roubini, 2004).

### Notable policy and practical themes
- IMF policy and practice:
  - IMF Policy on Lending into Arrears to Private Creditors (1999); Fund Policy on Lending into Arrears to Private Creditors—Further Consideration of the Good Faith Criterion (2002).
  - Annual Report on Exchange Arrangements and Exchange Restrictions, 1986–2006.
- Debt-restructuring instruments and valuation:
  - Sovereign debt buybacks and swaps (Medeiros, Ramlogan, and Polan, 2007).
  - Estimating investor losses and “haircuts” in restructurings (Sturzenegger and Zettelmeyer, 2008).
  - Pricing of credit default swaps during distress (Andritzky and Singh, 2006).
- Systemic crises and banking crises:
  - Systemic banking crises database and analysis (Laeven and Valencia, 2008).
  - Systemic sudden stops, balance-sheet effects, and recovery without credit (Calvo, Izquierdo, Meja, 2008; Calvo, Izquierdo, Talvi, 2006).
  - Studies on the interaction of sovereign crises and private-sector credit (Arteta and Hale, 2008).

### Representative empirical findings and research questions (as reflected in titles)
- Costs and consequences of sovereign default and serial default patterns (Borensztein and Panizza, 2008; Reinhart and Rogoff, 2004).
- Duration and delays in debt restructurings and the roles of creditors versus debtor policies (Benjamin and Wright, 2008; Trebesch, 2008; Tomz and Wright, 2007; Enderlein, Müller, and Trebesch, 2007).
- Market discipline and bank runs under systemic risk (Levy Yeyati et al., 2004; Honohan and Laeven, 2005).
- The relationship between trade openness, sudden stops, and vulnerability to crises (Frankel and Cavallo, 2004; Frankel and Roubini, 2001).

*References section of _wp0929 (bibliographic compilation).*

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