Sovereign Debt and the Financial Crisis: Will This Time Be Different?

by Carlos A. Primo Braga (Editor), Gallina A. Vincelette (Editor)

Overview

In the wake of the financial crisis of 2008, governments worldwide undertook massive fiscal interventions to stave off what otherwise would have likely been a system-wide financial and economic meltdown. The policy responses engendered significant shifts in growth trajectories and debt sustainability outlooks of both mature and developing economies. The magnitude of public liabilities incurred and the uncertainty surrounding the exit from unprecedented discretionary fiscal stimulus have become a major source of concern about a future crisis. Will the current stringent financial conditions lead to a wave of sovereign debt problems around the world? Or will countries, given their stronger fundamentals compared with previous crises’ episodes, successfully muddle through the crisis? The book presents and discusses policy-relevant research on the current debt challenges which developing, emerging market, and developed economies face. Its value added lies in the integrated approach of drawing on theoretical research and evidence from practitioners’ experience in developing, emerging market, and developed countries.

Product Details

ISBN-13:	9780821384831
Publisher:	World Bank Publications
Publication date:	11/16/2010
Pages:	524
Product dimensions:	5.90(w) x 9.00(h) x 1.10(d)

Table of Contents

Foreword xvii

Acknowledgments xix

Contributors xxi

Abbreviations xxv

Introduction Carlos A. Primo Braga Gallina A. Vincelette 1

Part I A New Wave of Sovereign Debt Crises? 13

1 The Sovereign Debt Crisis That Was Not Daniel Cohen Cécile Valadier 15

2 Unpleasant Surprises: Determinants and Risks of Sovereign Default Luca Bandiera Jesús Crespo Cuaresma Gallina A. Vincelette 45

3 Finding the Tipping Point: When Sovereign Debt Turns Bad Mehmet Caner Thomas Grennes Fritzi Koehler-Geib 63

4 Determinants of Emerging Market Sovereign Bond Spreads Dimitri Bellas Michael G. Papaioannou Iva Petrova 77

5 Sovereign Debt Distress and Corporate Spillover Impacts Mansoor Dailami 101

Part II The Effects of the Crisis on Debt 127

6 Debt Sustainability and Debt Distress in the Wake of the Ongoing Financial Crisis: The Case of IDA-Only African Countries Leonardo Hernández Boris Gamarra 129

7 Do Middle-Income Countries Still Have the Ability to Deal with the Global Financial Crisis? Ralph Van Doorn Vivek Suri Sudarshan Gooptu 173

8 Small States, the Financial Crisis, and the Aftermath Edgardo Favaro Dömeland William O'Boyle Tihomir Stucka 195

9 Europe's Crisis: Origins and Policy Challenges Edgardo Favaro Ying Li Juan Pradelli Ralph Van Doorn 221

Part III Debt Restructuring Mechanisms: Lessons and Beyond 241

10 Avoiding Avoidable Debt Crises: Lessons from Recent Defaults Yuefen Li Rodrigo Olivares-Caminal Ugo Panizza 243

11 Managing Subnational Credit and Default Risks Lili Liu Michael Waibel 273

12 Restructuring Sovereign Debts with Private Sector Creditors: Theory and Practice Mark L.J. Wright 295

13 A Standing Arbitral Tribunal as a Procedural Solution for Sovereign Debt Restructurings Christoph G. Paulus 317

14 International Lending of Last Resort and Sovereign Debt Restructuring Eduardo Fernández-Arias 331

Part IV Managing Public Debt in Crises: How Experiences Differ 355

15 Managing Public Debt and Its Financial Stability Implications Udaibir S. Das Michael G. Papaioannou Guilherme Pedras Jay Surti Faisal Ahmed 357

16 Public Debt Management in Emerging Market Economies: Has This Time Been Different? Phillip R.D. Anderson Anderson Caputo Silva Antonio Velandia-Rubiano 383

17 Crisis Preparedness and Debt Management in Low-Income Countries: Strengthening Institutions and Policy Frameworks Dana Weist Eriko Togo Abha Prasad William O'Boyle 413

18 Public Debt Management and Sovereign Risk during the Worst Financial Crisis on Record: Experiences and Lessons from the OECD Area Hans J. Blommestein 449

Index 467

Boxes

7.1 The Index of Macroeconomic Space 178

11.1 Subnational Debt Crisis and Reforms in Brazil 277

Figures

1.1 Number of Defaults per Country, 1970-2007 17

1.2 Number of Defaults per Year, 1970-2007 18

1.3 Number of Defaults per Country Using Modified Definition of Default, 1970-2007 20

1.4 Number of Defaults per Year Using Modified Definition of Default, 1970-2007 21

1.5 Number of Currency Crises per Year, 1970-2007 22