With Tamon Asonuma and Romain Ranciere. UniBe Discussion Paper 22-13, November 2022. PDF.
We document that creditor losses (”haircuts”) during sovereign debt restructurings vary across debt maturity. In our novel dataset on instrument-specific haircuts suffered by private creditors in 1999-‒2020 we find larger losses on short- than long-term debt, independently of the specific haircut measure we use. A standard asset pricing model rationalizes our findings under two assumptions, both of which are satisfied in the data: increasing short-run restructuring risk in the run-up to a restructuring, and high exit yields. We relate our findings to the policy debate on restructuring procedures.
In a CEPR discussion paper, Anna Gelpern, Sebastian Horn, Scott Morris, Brad Parks, and Christoph Trebesch document “How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments:”
China is the world’s largest official creditor, but we lack basic facts about the terms and conditions of its lending. … We collect and analyze 100 contracts between Chinese state-owned entities and government borrowers in 24 developing countries … First, the Chinese contracts contain unusual confidentiality clauses that bar borrowers from revealing the terms or even the existence of the debt. Second, Chinese lenders seek advantage over other creditors, using collateral arrangements such as lender-controlled revenue accounts and promises to keep the debt out of collective restructuring (“no Paris Club” clauses). Third, cancellation, acceleration, and stabilization clauses in Chinese contracts potentially allow the lenders to influence debtors’ domestic and foreign policies. Even if these terms were unenforceable in court, the mix of confidentiality, seniority, and policy influence could limit the sovereign debtor’s crisis management options and complicate debt renegotiation. Overall, the contracts use creative design to manage credit risks and overcome enforcement hurdles, presenting China as a muscular and commercially-savvy lender to the developing world.
Chinese commentary on the paper in the Global Times.