English, Article, Journal or magazine article edition: Sovereign Debt, Structural Adjustment and Conditionality Marcel Fafchamps

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Sovereign Debt, Structural Adjustment and Conditionality
Author
  • Marcel Fafchamps
Physical Description
  • preprint
Notes
  • The lack of proper enforcement mechanism for sovereign debt generates a commitment failure. As a result, a sovereign may seek to improve its position in debt renegotiations and thus evade its debt obligations by reducing exports. Conditionality seeks to provide a solution to the incentive problem by addressing the commitment failure. Formalizing this argument, we show that conditionality helps the repayment of sovereign debt. In certain circumstances, it can eliminate debt overhang, especially when it is coupled with concessionary lending of sufficient magnitude. It is, however, unable to restore first best. When it is anticipated by lenders, conditionality may get IFIs and sovereign debtors into a trap where the debt overhang persist, debt rescheduling takes place periodically, and conditionality continues indefinitely. Forthcoming in the Journal of Development Economics, November 1996
  • RePEc:wop:stanec:96015
Language
  • English
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