Does the IMF's official support affect sovereign bond maturities?

This paper looks at whether the tendency of some governments to borrow short term is reinforced by fi nancial support from the International Monetary Fund. I fi rst present a model of sovereign debt issuance at various maturities featuring endogenous liquidity crises and maturity mismatches due to fi nancial underdevelopment. I use the model to analyse the impact of IMF lending during debt crises on the sovereign’s optimal maturity structure. Within the model, although IMF assistance is able to catalyse private fl ows, this provides incentives for government to issue larger amounts of short-term debt, making the roll-over problem larger. I take the model to the data and fi nd support for the hypothesis that IMF lending leads countries to increase their short-term borrowing. Additionally, I do not fi nd any positive effect of IMF lending on countries’ ability to tap international capital markets. These results helps explain why a catalytic effect of IMF lending has proved empirically elusiveEste trabajo analiza si la fi nanciación ofi cial otorgada por el Fondo Monetario Internacional refuerza la tendencia de algunos Gobiernos a endeudarse a corto plazo. Primero se presenta un modelo sobre emisión de deuda pública en varios vencimientos en el que existen crisis de liquidez endógenas y desbalances de vencimientos (maturity mismatches) debidos a la falta de desarrollo fi nanciero. El modelo estudia el impacto de los créditos del FMI en la estructura de la deuda pública. Dentro del modelo, el Fondo es capaz de catalizar fl ujos privados, aunque esto genera incentivos a que los Gobiernos emitan más deuda a corto plazo. En la segunda parte se estudia este problema empíricamente. Los resultados muestran que los préstamos del FMI vienen acompañados de emisiones de deuda a más corto plazo. Adicionalmente, no encuentro ningún efecto positivo de la presencia ofi cial en la capacidad para emitir deuda pública en mercados internacionale

Using standstills to manage sovereign debt crises

This paper presents a model analyzing the potential for an International Court with powers to declare standstills to mitigate the coordination problem inherent to roll-overs in sovereign debt markets. It is shown that, regardless of the quality of the information handled by such an Institution, the scale of the coordination problem is reduced since its mere existence forces investors to focus on the Court's course of action rather than on other investors' beliefs. Furthermore, the model shows that, in order to avoid moral hazard, the right of recourse to the Court should be made conditional. [resumen de autor

A structural model of sovereign debt issuance : assessing the role of financial factors

Incluye bibliografíaThe role that domestic and international financial conditions have in shaping developing countries’ governments’ debt structure is structurally estimated using data on individual bond issuance. The structural model, which uses financial and demographic conditions to achieve identification, is used to estimate three key characteristics of sovereign bonds: issue size, maturity and spread. To minimize sample selection concerns, in a first step, the issuance decision is studied by means of a probit model. Results show that better developed domestic financial markets and looser international financial conditions raise developing countries ability to tap international markets and, mainly through their effect on the spreads, are important determinants of the observed debt structure. We find evidence of complementarities between domestic financial deepening and financing conditions in global market

Gross capital flows: Dynamics and crises

This paper analyzes the behavior of international capital flows by foreign and domestic agents, dubbed gross capital flows, over the business cycle and during financial crises. We show that gross capital flows are very large and volatile, especially relative to net capital flows. When foreigners invest in a country, domestic agents invest abroad, and vice versa. Gross capital flows are also pro-cyclical. During expansions, foreigners invest more domestically and domestic agents invest more abroad. During crises, total gross flows collapse and there is a retrenchment in both inflows by foreigners and outflows by domestic agents. These patterns hold for different types of capital flows and crises. This evidence sheds light on the sources of fluctuations driving capital flows and helps discriminate among existing theories. Our findings seem consistent with crises affecting domestic and foreign agents asymmetrically, as would be the case under the presence of sovereign risk or asymmetric information.Gross capital flows, net capital flows, domestic investors, foreign investors, crises.

Creditor discrimination during sovereign debt restructurings

This paper explores patterns of discrimination between residents and foreign creditors during recents sovereign debt restructurings. We analyze 10 recent episodes distinguishing between neutral cases in which the sovereign treated creditors equitably irrespective of their nationality and instances of discrimination against residents and non-residents. We then present evidence in support of the hypothesis that these patterns of discrimination can be explained by the origin of liquidity pressures, the ex ante soundness of the banking system and the extent of the domestic corporate sector’s reliance on international financial markets. On the theoretical side, we present a simple model of a government’s strategic decision to diferentiate between the servicing of its domestic and its external debt. In our model, the basic trade-off facing the authorities is to default on external debt and in so doing restricting private access to international capital markets or to default on domestic debt, thereby curtailing the banking sector’s capacity to lend to domestic firm

Gross capital flows : dynamics and crises

This paper analyzes the joint behavior of international capital flows by foreign and domestic agents -- gross capital flows -- over the business cycle and during financial crises. The authors show that gross capital flows are very large and volatile, especially relative to net capital flows. When foreigners invest in a country, domestic agents tend to invest abroad, and vice versa. Gross capital flows are also pro-cyclical, with foreigners investing more in the country and domestic agents investing more abroad during expansions. During crises, especially during severe ones, there is retrenchment, that is, a reduction in both capital inflows by foreigners and capital outflows by domestic agents. This evidence sheds light on the nature of shocks driving capital flows and helps discriminate among existing theories. The findings seem consistent with shocks that affect foreign and domestic agents asymmetrically, such as sovereign risk and asymmetric information.Emerging Markets,Macroeconomic Management,Economic Theory&Research,Debt Markets,Capital Flows

Crisis de deuda soberana : ¿qué papel puede jugar un Tribunal Internacional?

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