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The Cost of Aggressive Sovereign Debt Policies: How Much is theprivate Sector Affected?

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  • Christoph Trebesch
Abstract
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.

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  • Christoph Trebesch, 2009. "The Cost of Aggressive Sovereign Debt Policies: How Much is theprivate Sector Affected?," IMF Working Papers 2009/029, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/029
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    Cited by:

    1. Eduardo Borensztein & Ugo Panizza, 2009. "The Costs of Sovereign Default," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 683-741, November.
    2. Leszek Balcerowicz, 2010. "Sovereign Bankruptcy in the European Union in the Comparative Perspective," Working Paper Series WP10-18, Peterson Institute for International Economics.
    3. Das, Udaibir S. & Papaioannou, Michael G. & Trebesch, Christoph, . "Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets," Chapters in Economics,, University of Munich, Department of Economics.
    4. Tirole, Jean, 2012. "Country Solidarity, Private Sector Involvement and the Contagion of Sovereign Crises," IDEI Working Papers 761, Institut d'Économie Industrielle (IDEI), Toulouse, revised Sep 2012.
    5. Andreasen, Eugenia, 2015. "Sovereign default, enforcement and the private cost of capital," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 411-427.
    6. Juan J. Cruces & Christoph Trebesch, 2013. "Sovereign Defaults: The Price of Haircuts," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 85-117, July.
    7. Ran Bi & Marcos Chamon & Jeromin Zettelmeyer, 2016. "The Problem that Wasn’t: Coordination Failures in Sovereign Debt Restructurings," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 471-501, August.
    8. Jacob Engwerda & Bas van Aarle & Arie Weeren & Bas Van Aarle, 2015. "Debt Stabilization and Debt Mutualization in a Monetary Union with Endogenous Risk Premia," CESifo Working Paper Series 5564, CESifo.
    9. Jean Tirole, 2015. "Country Solidarity in Sovereign Crises," American Economic Review, American Economic Association, vol. 105(8), pages 2333-2363, August.
    10. Tamon Asonuma, 2010. "Serial Default and Debt Renegotiation," 2010 Meeting Papers 169, Society for Economic Dynamics.
    11. Rui Esteves & João Tovar Jalles, 2016. "Like Father Like Sons? The Cost of Sovereign Defaults in Reduced Credit to the Private Sector," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(7), pages 1515-1545, October.
    12. Trebesch, Christoph & Zabel, Michael, 2017. "The output costs of hard and soft sovereign default," European Economic Review, Elsevier, vol. 92(C), pages 416-432.
    13. Phan, Toan, 2017. "A model of sovereign debt with private information," Journal of Economic Dynamics and Control, Elsevier, vol. 83(C), pages 1-17.
    14. Aitor Erce, 2012. "Selective sovereign defaults," Globalization Institute Working Papers 127, Federal Reserve Bank of Dallas.
    15. Guido Sandleris, 2010. "Sovereign Defaults, Domestic Credit Market Institutions and Credit to the Private Sector," Business School Working Papers 2010-01, Universidad Torcuato Di Tella.
    16. Dailami, Mansoor, 2010. "Sovereign debt distress and corporate spillover impacts," Policy Research Working Paper Series 5380, The World Bank.
    17. Aitor Erce Domiguez, 2010. "Debtor Discrimination During Sovereign Debt Restructurings," 2010 Meeting Papers 1324, Society for Economic Dynamics.
    18. Siwińska-Gorzelak Joanna & Brzozowski Michał, 2018. "Sovereign default and the structure of private external debt," Central European Economic Journal, Sciendo, vol. 5(52), pages 1-9, January.
    19. Guido Sandleris, 2014. "Sovereign Defaults, Credit to the Private Sector, and Domestic Credit Market Institutions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(2-3), pages 321-345, March.
    20. Merve Kırkıl, 2021. "Sovereign Credit Risk Rating: Examining the Relations between Domestic Economy Data and the Probability of Default," Journal of Economic Policy Researches, Istanbul University, Faculty of Economics, vol. 8(1), pages 57-74, January.

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