Structuring and Restructuring Sovereign Debt: The Role of a Bankruptcy Regime

Structuring and Restructuring Sovereign Debt- The Role of a Bankruptcy RegimeStructuring and Restructuring Sovereign Debt: The Role of a Bankruptcy Regime

Patrick Bolton Columbia University∗∗ Olivier Jeanne IMF§

This version, November 2007

abstract

In an environment characterized by weak contractual enforcement, sov- ereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure ex post. We show however, that competition for repayment between lenders may result in a sovereign debt that is excessively difficult to restructure in equilibrium. This inefficiency may be alleviated by a suitably designed bankruptcy regime that facilitates debt restructuring.

Structuring and Restructuring Sovereign Debt: The Role of a Bankruptcy Regime

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