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Federal Reserve Bank of Chicago
Working Paper Series
The Stock of External Sovereign Debt: Can We Take the Data at ‘Face Value’?
Daniel A. Dias
Christine Richmond
Mark L. J. Wright
Abstract

The stock of sovereign debt is typically measured at face value. Defined as the undiscounted sum of future principal repayments, face values are misleading when debts are issued with different contractual forms or maturities. In this paper, we construct alternative measures of the stock of external sovereign debt for 100 developing countries from 1979 through 2006 that correct for differences in contractual form and maturity. We show that our alternative measures: (1) paint a very different quantitative, and in some cases also qualitative, picture of the stock of developing country external sovereign debt; (2) often invert rankings of indebtedness across countries, which historically defined eligibility for debt forgiveness; (3) indicate that the empirical performance of the benchmark quantitative model of sovereign debt deteriorates by roughly 50% once model-consistent measures of debt are used; (4) show how the spread of aggregation clauses in debt contracts that award creditors voting power in proportion to the contractual face value may introduce inefficiencies into the process of restructuring sovereign debts; and (5) illustrate how countries have manipulated their debt issuance to meet fiscal targets written in terms of face values.


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Daniel A. Dias & Christine Richmond & Mark L. J. Wright, The Stock of External Sovereign Debt: Can We Take the Data at ‘Face Value’?, Federal Reserve Bank of Chicago, Working Paper Series WP-2014-5, 09 May 2014.
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Keywords: Stocks; Sovereign debts
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