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Thimann, Christian
Wölfinger, Regine
Bracke, Thierry
Basto, Rita Bessone
Hollensen, Ole
von Stenglin, Stephan
de Lis, Santiago Fernández
Weber, Pierre-François
Committeri, Marco
Pauli, Rolf
Just, Christian
Nikitin, Minna
Drage, John
Year of Publication: 
Series/Report no.: 
ECB Occasional Paper 32
Ensuring the involvement of private sector creditors in the resolution of sovereign debt crises is crucial to ensure an effective management and orderly resolution of those crises. A review of experience gained in past financial crises suggests that crisis management practices have been largely following a case-by-case approach. This has led to some uncertainty about how the official sector addresses different types of crises, which in turn might partially account for the very mixed results achieved so far. From a global welfare perspective, the resolution of international financial crises is too costly and takes too long. Efforts to improve predictability of crisis resolution processes – through guiding debtor, creditor and official sector behaviour – could lower overall costs of such crises and bring about a better distribution of these costs. Past experience with such private sector involvement shows that, in certain cases, existing instruments have successfully contributed to minimising the economic disruptions caused by crises. However, the effective use of these instruments requires predictable and strong commitment of all parties involved. Key variables in that regard are the country’s economic fundamentals and its track record prior to the crisis, underscoring the importance of effective surveillance and crisis prevention. Success also hinges on the country’s resolve to implement necessary domestic adjustment measures. A transparent process providing for early dialogue between a debtor and its creditors also facilitates private sector involvement. Finally, the IMF plays a key role in crisis situations, as accurate and timely diagnosis by the IMF helps identify at an early stage the need for private sector involvement.
Sovereign default
bond restructuring
emerging markets
financial crises
moral hazard
international financial architecture.
Document Type: 
Research Report
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