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Rescheduling of Sovereign Debt: Forgiveness, Precommitment, and New Money

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  • Boot, Arnoud W A
  • Kanatas, George

Abstract

The authors analyze debt renegotiation between a lender and a sovereign borrower. A sovereign, endowed with tradable and nontradable goods technologies and debt outstanding, may have the incentive to shift production to nontradable goods if lenders are able to seize foreign assets generated by the sale of tradables. The authors study an integrated rescheduling 'package' involving debt forgiveness, new money, and sovereign precommitment of production, and show that it Pareto-dominates pure debt relief. With asymmetric information between lender and sovereign, precommitment possibly becomes an even more important feature of the renegotiated agreement. Copyright 1995 by Ohio State University Press.

Suggested Citation

  • Boot, Arnoud W A & Kanatas, George, 1995. "Rescheduling of Sovereign Debt: Forgiveness, Precommitment, and New Money," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 363-377, May.
    • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:2:p:363-77
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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.
    2. Cao, Qingqing & Minetti, Raoul & Olivero, Maria, 2018. "No Pain, No Gain. Multinational Banks in the Business Cycle," School of Economics Working Paper Series 2018-6, LeBow College of Business, Drexel University.
    3. Raoul Minetti & Matteo Iacoviello, 2010. "Foreign Lenders in Emerging Economies," 2010 Meeting Papers 1050, Society for Economic Dynamics.
    4. Bowe, M. & Dean, J.W., 1997. "Has the Market Solved the Sovereign-Debt Crisis?," Princeton Studies in International Economics 83, International Economics Section, Departement of Economics Princeton University,.
    5. Qingqing Cao, 2018. "No Pain, No Gain. Multinational Banks in the Business Cycle," 2018 Meeting Papers 1059, Society for Economic Dynamics.
    6. Leo Ferraris & Raoul Minetti, 2013. "Foreign Banks and the Dual Effect of Financial Liberalization," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1301-1333, October.

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