DP3771 Is Aggregation a Problem for Sovereign Debt Restructuring?

Author(s): Barry Eichengreen, Ashoka Mody
Publication Date: February 2003
Keyword(s): crises, sovereign debt
JEL(s): F00
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3771

Reform of the mechanisms and procedures through which problems of sovereign debt sustainability are resolved is at the centre of the effort to make the international financial system less crisis prone. The purported difficulty of coordinating creditors holding distinct bond issues provides one basis for choosing among the reform proposals currently on the table. We assess the significance of this difficulty (?the aggregation problem?) using evidence on the pricing of international bonds. Our evidence suggests that investors do perceive that aggregation has costs. Plausibly, they worry most about difficulties of information sharing and coordination across issues when the debt in question is an obligation of a country with a significant perceived probability of having to restructure.