- Sovereign Lending
- Illiquidity versus Insolvency
-Another important concept
Illiquidity: a short-term funding problem
Insolvency: not willing and/or able to service its debt indefinitely
short-term borrowing often carries a significantly lower interest rate than loger-term borrwing
Default and no-default situations are (Nash-)equilibrium together
(suppose the money a country borrows is provided by a large group of lenders)
- the difference of these two can sometimes very small.
- Partial default and rescheduling
In practice, most defaults end up being partial, not complete, albeit sometimes after long negotiations and much acrimony.
In most cases, partial repayment is significant and not a token (to re-enter the debt market.)
A bargaining perspective helps explain why we include rescheduling in our definition of sovereign defaults.
The fact that countries sometimes default on their debt does not provide prima facie evidence that investors were irrational -- they receive risk premiums sometimes exceeding 5 or 10 perce.t per annum.
prima facie: apparently
- Odious debt
- Domestic public debt
Domestic debt is debt a country owes to itself.
Robert Barros's Ricardian model of debt says that domestic public debt does not matter at all.(?)
However, Barro's analysis presumes that debt will be always honoured.
outright defaults on domestic public debt occur far more often than one might imagine but not so often as external debt.
