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Private Sector Involvement and International Financial CrisesAn Analytical Perspective$
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Michael Chui and Prasanna Gai

Print publication date: 2005

Print ISBN-13: 9780199267750

Published to Oxford Scholarship Online: July 2005

DOI: 10.1093/0199267758.001.0001

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Sovereign Debt Workouts

Sovereign Debt Workouts

Chapter:
(p.117) 9 Sovereign Debt Workouts
Source:
Private Sector Involvement and International Financial Crises
Author(s):

Michael Chui

Prasanna Gai (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/0199267758.003.0009

Explains how policymakers must trade the ex-post costs of creditor coordination failure, which can help discipline sovereign debtors, against the ex-ante costs of debtor moral hazard. The threat of a liquidity crisis—a creditor run—is shown to be a powerful, albeit blunt, disciplining force in international capital markets, and the chapter explores the circumstances under which official intervention by the IMF can substitute for this discipline. The efficacy of collective action clauses as a means of ameliorating creditor coordination problems is also given a formal treatment.

Keywords:   collective action clauses, costs of creditor coordination, creditor run, debtor moral hazard, IMF, liquidity crisis, sovereign debt

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