Recent events have shown that sovereigns, just like banks, can be subject to runs, highlighting the importance of the investor base for their liabilities. This paper proposes a methodology for ...compiling internationally comparable estimates of investor holdings of sovereign debt. Based on this methodology, it introduces a dataset for 24 major advanced economies that can be used to track US$42 trillion of sovereign debt holdings on a quarterly basis over 2004-11. While recent outflows from euro periphery countries have received wide attention, most sovereign borrowers have continued to increase reliance on foreign investors. This may have helped reduce borrowing costs, but it can imply higher refinancing risks going forward. Meanwhile, advanced economy banks' exposure to their own government debt has begun to increase across the board after the global financial crisis, strengthening sovereign-bank linkages. In light of these risks, the paper proposes a framework-sovereign funding shock scenarios (FSS)-to conduct forward-looking analysis to assess sovereigns' vulnerability to sudden investor outflows, which can be used along with standard debt sustainability analyses (DSA). It also introduces two risk indices-investor base risk index (IRI) and foreign investor position index (FIPI)-to assess sovereigns' vulnerability to shifts in investor behavior.
An integrated approach to the economics of sovereign default Fiscal crises and sovereign default repeatedly threaten the stability and growth of economies around the world. Mark Aguiar and Manuel ...Amador provide a unified and tractable theoretical framework that elucidates the key economics behind sovereign debt markets, shedding light on the frictions and inefficiencies that prevent the smooth functioning of these markets, and proposing sensible approaches to sovereign debt management. The Economics of Sovereign Debt and Default looks at the core friction unique to sovereign debt—the lack of strong legal enforcement—and goes on to examine additional frictions such as deadweight costs of default, vulnerability to runs, the incentive to "dilute" existing creditors, and sovereign debt's distortion of investment and growth. The book uses the tractable framework to isolate how each additional friction affects the equilibrium outcome, and illustrates its counterpart using state- of-the-art computational modeling. The novel approach presented here contrasts the outcome of a constrained efficient allocation—one chosen to maximize the joint surplus of creditors and government—with the competitive equilibrium outcome. This allows for a clear analysis of the extent to which equilibrium prices efficiently guide the government's debt and default decisions, and of what drives divergences with the efficient outcome.Providing an integrated approach to sovereign debt and default, this incisive and authoritative book is an ideal resource for researchers and graduate students interested in this important topic.
This volume offers two important contributions to the literature on sovereign debt. First, it provides a unique genealogy of debt collection practices in terms of their availability, acceptability ...and efficacy. We argue that creditors’ tactics and methods to enforce debt repayment emerged and solidified to a large extent in relation to the threads of colonial history, from the building of empires to the decolonisation era. Second, this volume reflects critically on the relevance of neo-colonial interpretations in recent cases of sovereign debt disputes
States of credit Stasavage, David
2011., 20110705, 2011, 2011-07-05, Volume:
35
eBook
States of Credit provides the first comprehensive look at the joint development of representative assemblies and public borrowing in Europe during the medieval and early modern eras. In this ...pioneering book, David Stasavage argues that unique advances in political representation allowed certain European states to gain early and advantageous access to credit, but the emergence of an active form of political representation itself depended on two underlying factors: compact geography and a strong mercantile presence.
Why do lenders time and again loan money to sovereign borrowers who promptly go bankrupt? When can this type of lending work? As the United States and many European nations struggle with mountains of ...debt, historical precedents can offer valuable insights.Lending to the Borrower from Helllooks at one famous case--the debts and defaults of Philip II of Spain. Ruling over one of the largest and most powerful empires in history, King Philip defaulted four times. Yet he never lost access to capital markets and could borrow again within a year or two of each default. Exploring the shrewd reasoning of the lenders who continued to offer money, Mauricio Drelichman and Hans-Joachim Voth analyze the lessons from this important historical example.
Using detailed new evidence collected from sixteenth-century archives, Drelichman and Voth examine the incentives and returns of lenders. They provide powerful evidence that in the right situations, lenders not only survive despite defaults--they thrive. Drelichman and Voth also demonstrate that debt markets cope well, despite massive fluctuations in expenditure and revenue, when lending functions like insurance. The authors unearth unique sixteenth-century loan contracts that offered highly effective risk sharing between the king and his lenders, with payment obligations reduced in bad times.
A fascinating story of finance and empire,Lending to the Borrower from Helloffers an intelligent model for keeping economies safe in times of sovereign debt crises and defaults.
This paper proposes a new empirical measure of cooperative versus conflictual crisis resolution following sovereign default and debt distress. The index of government coerciveness is presented as a ...proxy for excusable versus inexcusable default behaviour and used to evaluate the costs of default for the domestic private sector, in particular its access to international debt markets. Our findings indicate that unilateral, aggressive sovereign debt policies lead to a strong decline in corporate access to external finance (loans and bond issuance). We conclude that coercive government actions towards external creditors can have strong signalling effects with negative spillovers on domestic firms. "Good faith" debt renegotiations may be crucial to minimize the domestic costs of sovereign defaults.
How does one package and sell confidence in the stability of a
nation riven by civil strife? This was the question that loomed
before the Philadelphia financial house of Jay Cooke &
Company, ...entrusted by the US government with an unprecedented
sale of bonds to finance the Union war effort in the early days of
the American Civil War. How the government and its agents marketed
these bonds revealed a version of the war the public was willing to
buy and buy into, based not just in the full faith and credit of
the United States but also in the success of its armies and its
long-term vision for open markets. From Maine to California, and in
foreign halls of power and economic influence, thousands of agents
were deployed to sell a clear message: Union victory was unleashing
the American economy itself. This fascinating work of financial and
political history during the Civil War era shows how the marketing
and sale of bonds crossed the Atlantic to Europe and beyond,
helping ensure foreign countries' vested interest in the Union's
success. Indeed, David K. Thomson demonstrates how Europe, and
ultimately all corners of the globe, grew deeply interdependent on
American finance during, and in the immediate aftermath of, the
American Civil War.
This book develops new theory about the link between debt and democracy and applies it to a classic historical comparison: Great Britain in the eighteenth century which had strong representative ...institutions and sound public finance vs. ancient regime France, which had neither. The book argues that whether representative institutions improve commitment depends on the opportunities for government creditors to form new coalitions with other social groups, more likely to occur when a society is divided across multiple political cleavages. It then presents historical evidence to show that improved access to finance in Great Britain after 1688 had as much to do with the development of the Whig Party as with constitutional changes. In France, it is suggested that the balance of partisan forces made it unlikely that an early adoption of 'English-style' institutions would have improved credibility.
The adjustment problems of public finance in countries of Central and Eastern Europe (CEE) are often misunderstood and misinterpreted by western scholars. This book contributes to the bridging of the ...gap between what is being thought by external observers and what the actual public finance reality is, as described by competent local scholars. Popular political economy research has remained biased towards advanced countries and has neglected developing and transition economies. Publications on CEE countries’ public finances seem to be reluctant to apply the conceptual framework of standard political economy to these countries because of the assumption that CEE economies are different from their Western peers. But is this really the case? Are CEE economies so much different that none of the well-known “Western” political economy concepts or models can be applied to the analysis of fiscal performance in the region? Benczes demonstrates that they can be safely applied in the context of CEE economies as well. He sees no need to develop a separate or unique theory designed for the study and understanding of (one-time) transition economies.
This paper provides a comprehensive survey of pertinent issues on sovereign debt restructurings, based on a newly constructed database. This is the first complete dataset of sovereign restructuring ...cases, covering the six decades from 1950-2010; it includes 186 debt exchanges with foreign banks and bondholders, and 447 bilateral debt agreements with the Paris Club. We present new stylized facts on the outcome and process of debt restructurings, including on the size of haircuts, creditor participation, and legal aspects. In addition, the paper summarizes the relevant empirical literature, analyzes recent restructuring episodes, and discusses ongoing debates on crisis resolution mechanisms, credit default swaps, and the role of collective action clauses.
