IMF Working Papers

The Costs of Sovereign Default

Author/Editor:

Eduardo Borensztein ; Ugo Panizza

Publication Date:

October 1, 2008

Electronic Access:

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Summary:

This paper evaluates empirically four types of cost that may result from an international sovereign default: reputational costs, international trade exclusion costs, costs to the domestic economy through the financial system, and political costs to the authorities. It finds that the economic costs are generally significant but short-lived, and sometimes do not operate through conventional channels. The political consequences of a debt crisis, by contrast, seem to be particularly dire for incumbent governments and finance ministers, broadly in line with what happens in currency crises.

Series:

Working Paper No. 2008/238

Subject:

Bank credit Banking crises Credit ratings Debt default Trade credits

Frequency:

Quarterly