Discussion paper

DP272 Settling Defaults in the Era of Bond Finance

We scrutinize two strands of received wisdom about debt crises: that which draws a strong contrast between the 1930s and 1980s in extent of default and ease of settlement, and that which attributes the difference to greater government involvement today. Rather than a sharp, dichotomous variable, default in the 1930s was often partial and intermittent. Neither was settlement achieved in a way that readily permitted countries to put the debt crisis behind them. And creditor-country governments were often intimately involved in the process of debt negotiation. We consider a number of additional factors influencing the ease of settlement: (i) institutional features of the lending process; (ii) institutional features of the settlement process; (iii) the role of national divisions within the creditor community; (iv) the influence of global commodity- and credit-market conditions over the process of settlement.

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Citation

Eichengreen, B and R Portes (1988), ‘DP272 Settling Defaults in the Era of Bond Finance‘, CEPR Discussion Paper No. 272. CEPR Press, Paris & London. https://cepr.org/publications/dp272