Trade Costs of Sovereign Debt Restructurings : Does a Market-Friendly Approach Improve the Outcome?

Author/Editor:

Tamon Asonuma ; Marcos d Chamon ; Akira Sasahara

Publication Date:

November 15, 2016

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 16/222

Subject:

English

Publication Date:

November 15, 2016

ISBN/ISSN:

9781475553857/1018-5941

Stock No:

WPIEA2016222

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

57

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