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, Carmen M. Reinhart 1Harvard University, Kennedy School Search for other works by this author on: Oxford Academic Christoph Trebesch 2University of Munich Search for other works by this author on: Oxford Academic
Journal of the European Economic Association, Volume 14, Issue 1, 1 February 2016, Pages 215–251, https://doi.org/10.1111/jeea.12166
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01 February 2016
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Carmen M. Reinhart, Christoph Trebesch, Sovereign Debt Relief and Its Aftermath, Journal of the European Economic Association, Volume 14, Issue 1, 1 February 2016, Pages 215–251, https://doi.org/10.1111/jeea.12166
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Abstract
This paper studies sovereign debt relief in a long-term perspective. We quantify the relief achieved through default and restructuring in two distinct samples: 1920–1939, focusing on the defaults on official (government to government) debt in advanced economies after World War I; and 1978–2010, focusing on emerging market debt crises with private external creditors. Debt relief was substantial in both eras, averaging 21% of GDP in the 1930s and 16% of GDP in recent decades. We then analyze the aftermath of debt relief and conduct a difference-in-differences analysis around the synchronous war debt defaults of 1934 and the Baker and Brady initiatives of the 1980s/1990s. The economic landscape of debtor countries improves significantly after debt relief operations, but only if these involve debt write-offs. Softer forms of debt relief, such as maturity extensions and interest rate reductions, are not generally followed by higher economic growth or improved credit ratings.
© 2016 by the European Economic Association
JEL
E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook F3 - International Finance H6 - National Budget, Deficit, and Debt N0 - General
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As an expert in the field of sovereign debt and economic policy, my extensive knowledge allows me to delve into the intricacies of the article titled "Sovereign Debt Relief and Its Aftermath" authored by Carmen M. Reinhart and Christoph Trebesch, published in the Journal of the European Economic Association in February 2016.
The article undertakes a comprehensive analysis of sovereign debt relief over a long-term perspective, focusing on two distinct historical periods: 1920–1939 and 1978–2010. Notably, the authors quantify the relief achieved through default and restructuring in these eras, emphasizing defaults on official government-to-government debt in advanced economies after World War I and emerging market debt crises with private external creditors in recent decades.
In the first period, from 1920 to 1939, the study centers on defaults on official debt in advanced economies post-World War I. During this timeframe, the authors find that debt relief was substantial, averaging 21% of GDP. The second period, from 1978 to 2010, focuses on emerging market debt crises with private external creditors. Here, the authors observe an average debt relief of 16% of GDP.
The article then delves into the aftermath of debt relief operations, conducting a difference-in-differences analysis around significant events such as the war debt defaults of 1934 and the Baker and Brady initiatives of the 1980s and 1990s. The findings suggest that the economic landscape of debtor countries improves significantly after debt relief operations, but only if these involve debt write-offs. Softer forms of debt relief, such as maturity extensions and interest rate reductions, do not generally lead to higher economic growth or improved credit ratings.
The research contributes to the understanding of the economic implications of sovereign debt relief, shedding light on the effectiveness of different relief measures. The authors' emphasis on historical contexts and the quantitative analysis of debt relief makes this article a valuable resource for scholars, policymakers, and economists interested in the dynamics of sovereign debt and its aftermath.
It's important to note that the article was published in the Journal of the European Economic Association in 2016, and while my knowledge is up to January 2022, I may not have information on subsequent developments or discussions related to this specific research.
