Sovereign liquidity crisis: the strategic case for a payments standstill
Miller, Marcus and Zhang, Lei (1999) Sovereign liquidity crisis: the strategic case for a payments standstill. Working Paper. Coventry: University of Warwick. Centre for the Study of Globalisation and Regionalisation. Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation) (No.35/).
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Is sovereign borrowing so different from corporate debt that there is no need for bankruptcy-style procedures to protect debtors? With the waiver of immunity, sovereign debtors who already face severe disruption from short-term creditors grabbing their currency reserves are also exposed to litigious creditors trying to seize what assets they can in a ‘race of the vultures’.
Shielding sovereign debtors from inter-creditor conflict by authorised standstills on payments doubt-less runs some risk of debtor’s moral hazard. But the lack of an orderly procedure for resolving sovereign liquidity crises means that the IMF is de facto forced to bail out countries in trouble. This leads to both debtor and creditor moral hazard, as investors lend without monitoring, knowing that their investments are essentially guaranteed. The strategic case for legalising standstills is to rescue the international financial system from this ‘time consistent’ trap.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HJ Public Finance|
|Divisions:||Faculty of Social Sciences > Economics
Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation
|Library of Congress Subject Headings (LCSH):||Debts, Public, Liquidity (Economics), Moral hazard, Time and economic reactions|
|Series Name:||Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation)|
|Publisher:||University of Warwick. Centre for the Study of Globalisation and Regionalisation|
|Place of Publication:||Coventry|
|Official Date:||May 1999|
|Number of Pages:||31|
|Institution:||University of Warwick|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
|Funder:||Economic and Social Research Council (Great Britain) (ESRC)|
|Grant number:||L120251024 (ESRC)|
Bank of International Settlements, (1998), 68th Annual Report, 1st April 1997 – 31st March 1998, Basle,
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