## Sovereign Default, Private Sector Creditors and the IFIs

_IMF Working Papers, March 1, 2009_

## Source details

**Canonical URL:** [Sovereign Default, Private Sector Creditors and the IFIs](https://www.imf.org/en/publications/wp/issues/2016/12/31/sovereign-default-private-sector-creditors-and-the-ifis-22695)

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## Bibliographic details
- Authors: Emine Boz
- Published: March 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451871944.001

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### Summary of paper
- The paper builds a model of a sovereign borrower that has access to credit from private sector creditors and an IFI.
- Private sector creditors and the IFI offer different debt contracts that are modelled based on the institutional frameworks of these two types of debt.
- The paper analyzes the decisions of a sovereign on how to allocate its borrowing needs between these two types of creditors, and when to default on its debt to the private sector creditor.
- The numerical analysis shows that, consistent with the data:
  - the model predicts countercyclical IFI debt along with procyclical commercial debt flows;
  - the model matches other features of the data such as frequency of IFI borrowing and mean IFI debt stock.

### Model structure and institutional assumptions
- Sovereign borrower chooses allocation of borrowing between:
  - private sector creditors (commercial debt);
  - an IFI (multilateral development institution).
- Debt contracts for each creditor type are explicitly modelled according to their institutional frameworks (as described in the paper).

### Key findings from numerical analysis
- Countercyclicality of IFI debt (IFI borrowing rises in downturns).
- Procyclicality of commercial debt flows (private lending rises in upturns).
- Matches data features including:
  - frequency of IFI borrowing;
  - mean IFI debt stock.

### Subjects and keywords
- Subjects: Credit; Debt default; Emerging and frontier financial markets; External debt; Financial institutions; Financial markets; Multilateral development institutions; National accounts; Private debt; Public debt.
- Keywords: Debt default; debt flow; default probability; Emerging and frontier financial markets; emerging markets; Global; IFI debt; IFIs; IMF debt; IMF lending; Multilateral development institutions; price schedule; Private debt; sovereign debt and default; WP.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/sovereign-default-private-sector-creditors-and-the-ifis-22695_