DP11710 Waiting for a haircut? A bargaining perspective on sovereign debt restructuring

Author(s): Sayantan Ghosal, Marcus Miller, Kannika Thampanishvong
Publication Date: December 2016
Keyword(s): asymmetric information, debt restructuring, delay, growth, sustainability
JEL(s): C78, F34
Programme Areas: International Macroeconomics and Finance
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11710

Recent investigation of sovereign debt negotiations finds that prompt, market-friendly "reprofiling" often fails to achieve sustainability; but serious debt restructuring typically involves delay. We develop an incomplete information bargaining model to account for this, highlighting economic recovery and sustainability considerations as complementary reasons for delay. Some recent settlements are discussed, along with some policy implications of excessive profiling.