DP272 Settling Defaults in the Era of Bond Finance

Author(s):	Barry Eichengreen, Richard Portes
Publication Date:	September 1988
Keyword(s):	Debt Crisis, Debtor Nation, International Debt, Sovereign Borrowing
JEL(s):	123, 411, 433, 441, 443
Programme Areas:	International Macroeconomics
Link to this Page:	cepr.org/active/publications/discussion_papers/dp.php?dpno=272

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.