Resolution of sovereign debt crises: the new old framework
Ravallion, Martin; Lokshin, Michael
Dealing with country debt crises is often protracted and very costly to both debtor and creditors. Orderly resolution of sovereign debt crises has become more difficult. The shift from the syndicated bank loans of the 1970s to a mix of short-term bank finance and bonds has created a much wider group of creditors and instruments. This exacerbates the 'rush to the exits' by creditors in a crisis and the collective action problems involved in debt restructuring. What seems rational for an individual creditor trying to get his money out becomes counterproductive when all try to do so simultaneously, or when they cannot agree to accept some loss if some think they can do better acting alone.
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