The New Approach to Sovereign Debt Restructuring: Setting the Incentives Right

IMF Policy Discussion Papers, March 1, 2002

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The New Approach to Sovereign Debt Restructuring: Setting the Incentives Right

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Bibliographic details

• Authors: Carlo A Sdralevich, Biaggio Bossone
• Published: March 1, 2002
• Series: IMF Policy Discussion Papers
• DOI: https://doi.org/10.5089/9781451973594.003

Overview

• Authors: Carlo A Sdralevich, Biaggio Bossone
• Date: March 1, 2002
• Purpose: Discusses key incentive-related issues of the sovereign debt restructuring mechanism recently outlined by the IMF First Deputy Managing Director, framing the mechanism in the context of involving the private sector in financial crisis resolution (PSI).

Key findings and analysis

• The structure of incentives in the mechanism should be consistent with the principle of favoring market-oriented, voluntary solutions to financial crises.
• The paper identifies the conditions for setting up an appropriate incentive structure for sovereign debt restructuring.
• The mechanism is examined with respect to its potential impact on investment in emerging markets.
• The paper frames discussion around private sector involvement (PSI) and the implication of incentive structures for crisis resolution and moral hazard.

Operational issues explored

• Access policy on IMF resources and its interaction with the restructuring mechanism.
• The power to activate the mechanism.
• The mechanism’s relation with intermediate PSI instruments.
• The mechanism’s impact on investment in emerging markets and on crisis resolution dynamics.

Policy implications and recommendations

• Incentive structures should favor market-oriented, voluntary solutions to financial crises to limit moral hazard.
• Settings for an appropriate incentive structure need careful alignment with PSI instruments and IMF access policy to ensure effective sovereign debt restructuring outcomes.

Subject areas and keywords

• Subjects: Asset and liability management; Debt restructuring; Debt sustainability analysis; External debt; Financial crises; Financial sector policy and analysis; Moral hazard; Sovereign debt restructuring; Tax incentives.
• Keywords: cost structure; crisis resolution; debt default; Debt restructuring; Debt sustainability analysis; incentive structure; Moral hazard; PDP; private sector involvement; SDRM failure; SDRM framework; SDRM payoff structure; SDRM phase; sovereign debt; Sovereign debt restructuring.

Content in this bundle

• The New Approach to Sovereign Debt Restructuring: Setting the Incentives Right - PDP/02/04
  • The New Approach to Sovereign Debt Restructuring: Setting the Incentives Right - PDP/02/04 (Markdown version)
  • The New Approach to Sovereign Debt Restructuring: Setting the Incentives Right - PDP/02/04 (PDF)