Working Paper

\"Burden sharing\" in sovereign debt reduction

Abstract: We examine a concerted debt reduction deal between a sovereign debtor, a private creditor, and an official creditor, who insures the deposits of the commercial bank. Our results show that a weakening of the financial position of the commercial bank reduces the contribution of the commercial bank and increases that of the official creditor, without affecting the net terms faced by the debtor. This result is robust to changes in seniority. Moreover, leaving both creditor values unchanged requires that commercial banks retire debt at \"unfairly\" high prices, while official creditors make a net contribution.

Keywords: Debts, External; Banks and banking; Brady Plan;

Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Working Papers in Applied Economic Theory

Publication Date: 1994

Number: 94-18