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1/9
This is a good paper (and good thread) documenting the strengthening in recent years of creditor rights in sovereign debt. The authors point out, for example, that the share of debt crises involving litigation has increased from about 5% in the 1980s to 30-50% after 2000. https://twitter.com/JSchmchr/status/1348346131969957890
This is a good paper (and good thread) documenting the strengthening in recent years of creditor rights in sovereign debt. The authors point out, for example, that the share of debt crises involving litigation has increased from about 5% in the 1980s to 30-50% after 2000. https://twitter.com/JSchmchr/status/1348346131969957890
2/9
Is this a good thing or a bad thing? As the authors note, some analysts “expect stronger creditor rights to have a positive market impact, as governments become less likely to over-borrow and default strategically”, while others believe “that creditor rights can become...
Is this a good thing or a bad thing? As the authors note, some analysts “expect stronger creditor rights to have a positive market impact, as governments become less likely to over-borrow and default strategically”, while others believe “that creditor rights can become...
3/9
too strong, making sovereign debt ‘excessively hard to restructure’”
There is little evidence of the former, and I would argue strongly for the latter: strengthening creditor rights is usually bad for both the obligor and creditors overall mainly because it can...
too strong, making sovereign debt ‘excessively hard to restructure’”
There is little evidence of the former, and I would argue strongly for the latter: strengthening creditor rights is usually bad for both the obligor and creditors overall mainly because it can...
4/9
significantly raise financial distress costs, which ends up not just undermining the borrower’s economy further, but also ultimately reduces the recovery value for creditors. Unfortunately while the impact of financial distress costs on reducing value for both obligor...
significantly raise financial distress costs, which ends up not just undermining the borrower’s economy further, but also ultimately reduces the recovery value for creditors. Unfortunately while the impact of financial distress costs on reducing value for both obligor...
5/9
and creditor is pretty well understood in corporate finance, it is not so well understood by economists.
What is more, when it comes to external debt, the restructuring process can affect not just all creditors, the obligor, and other agents in the obligor’s...
and creditor is pretty well understood in corporate finance, it is not so well understood by economists.
What is more, when it comes to external debt, the restructuring process can affect not just all creditors, the obligor, and other agents in the obligor’s...
6/9
economy, but also other agents in the economies of the creditors. This is because every dollar of export earnings that is paid to the international creditors is a dollar that will not be used for imports (all inflows into any country must be recycled as outflows either on...
economy, but also other agents in the economies of the creditors. This is because every dollar of export earnings that is paid to the international creditors is a dollar that will not be used for imports (all inflows into any country must be recycled as outflows either on...
7/9
the capital account or on the current account).
Stronger creditor rights, in other words, effectively recycle the export earnings of the obligor country in a way that boosts savings rather than boost demand. If global investment were constrained by scarce...
the capital account or on the current account).
Stronger creditor rights, in other words, effectively recycle the export earnings of the obligor country in a way that boosts savings rather than boost demand. If global investment were constrained by scarce...
8/9
savings, that might be a good thing. But it clearly isn’t: in fact in most of the world’s major economies ex-ante savings are too high and unlevered demand is weak (it is usually a rise in debt – and sometimes a rise in unemployment – that... https://carnegieendowment.org/chinafinancialmarkets/82991
savings, that might be a good thing. But it clearly isn’t: in fact in most of the world’s major economies ex-ante savings are too high and unlevered demand is weak (it is usually a rise in debt – and sometimes a rise in unemployment – that... https://carnegieendowment.org/chinafinancialmarkets/82991
9/9
reconciles the two), in which case the world would be better off if obligors could more easily strike favorable restructuring deals.
reconciles the two), in which case the world would be better off if obligors could more easily strike favorable restructuring deals.
