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On the Term Structure of Sovereign-Debt Contracts

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  • Bac, Mehmet

Abstract

This paper studies the term structure of a repudiation-proof debt contract encompassing many sequentially scheduled short-term loans in a principal-agent (lender-sovereign borrower) framework. The extension of each loan is conditional on the full repayment of the previous loans in due maturity. Both direct sanctions and loss of access to the international credit market are present as debt-repudiation costs. It is shown that the proposed repudiation-proof composite contract exhibiting decreasing loan sizes and increasing maturities is better for coping with the enforcement problems that characterize sovereign lending. Copyright 1995 by Blackwell Publishing Ltd.

Suggested Citation

  • Bac, Mehmet, 1995. "On the Term Structure of Sovereign-Debt Contracts," Review of International Economics, Wiley Blackwell, vol. 3(2), pages 174-185, June.
    • Handle: RePEc:bla:reviec:v:3:y:1995:i:2:p:174-85
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    Cited by:

    1. Michael WESTPHALEN, 2002. "Valuation of Sovereign Debt with Strategic Defaulting and Rescheduling," FAME Research Paper Series rp43, International Center for Financial Asset Management and Engineering.

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