Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/113758
Authors: 
Reinhart, Carmen M.
Trebesch, Christoph
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5422
Abstract: 
This paper studies sovereign debt relief in a long-term perspective. We quantify the relief achieved through default and restructuring in two distinct samples: 1920-1939, focusing on the defaults on official (government to government) debt in advanced economies after World War I; and 1978-2010, focusing on emerging market debt crises with private external creditors. Debt relief was substantial in both eras, averaging 21% of GDP in the 1930s and 16% of GDP in recent decades. We then analyze the aftermath of debt relief and conduct a difference-in-differences analysis around the synchronous war debt defaults of 1934 and the Baker and Brady initiatives of the 1980s/1990s. The economic landscape of debtor countries improves significantly after debt relief operations, but only if these involve debt write-offs. Softer forms of debt relief, such as maturity extensions and interest rate reductions, are not generally followed by higher economic growth or improved credit ratings.
Subjects: 
sovereign default
debt overhang
debt forgiveness
crisis resolution
JEL: 
E60
F30
N00
H60
Document Type: 
Working Paper

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