Layna Mosley: Sovereign Debt Restructuring

The Moynihan Institute’s new series Study of Global Politics presents Layna Mosley of Princeton University. 

How does the presence of new and diverse creditors affect the occurrence of sovereign debt restructurings? We posit that China’s presence as a creditor renders Paris Club (bilateral official) restructurings less likely. This occurs, in part, because China offers an alternative source of credit, providing more fiscal space to countries in distress.

Geopolitical rivalries and failure to coordinate burden sharing between China and Paris Club members heighten this effect: it is countries with larger outstanding debt to Paris Club members, and countries that are less aligned with the United States are even less likely to experience a Paris Club restructuring.

Moreover, this pattern is most evident for countries with higher levels of transparency, allowing other creditors an awareness of their borrowing relationships and fiscal policy. We test, and find support for, these expectations using data for the 2000-2017.

We also find no evidence that the presence of China as a creditor during this period is related to the completion of private debt restructurings.  [This paper is joint work with Cameron Ballard-Rosa and Peter Rosendorff].