Partial Default Research Articles

A Constant Recontracting Model of Sovereign Debt

We present a dynamic model of international lending in which borrowers cannot commit to future repayments and in which debtors can sometimes successfully negotiate partial defaults or "rescheduling agreements." All parties in a debt rescheduling negotiation realize that today's rescheduling agreement may itself have to be renegotiated in the future. Our bargaining-theoretic approach allows us to handle the effects of uncertainty on sovereign debt contracts in a much more satisfactory way than in earlier analyses. The framework is readily extended to analyze the conflicting interest of different lenders and of banks and creditor country taxpayers.

Trade Dependency, Bargaining and External Debt

This paper analyzes the factors determining the payment on outstanding debt in the presence of partial defaults, and the feasibility of renewed investment. We show that a higher relative size of sectors with lower substitutability between domestic and foreign products will increase the resource transfer ceiling. Even with a partial default, investment in highly trade dependent sectors with high productivity may be warranted. This investment can be implemented by a marginal relief of the present debt service, in exchange for investment in the proper sector. A way to partially overcome some of the monitoring problems associated with renewed investment is through direct investment.

African debt and the debate on stabilisation: The case of Nigeria

Nigeria is an important test case of the socio-political effects of debt in Sub-Saharan Africa. First, its level of debt is greater than that of any other nation on the continent. Second, its oil wealth bought it a degree of influence in international relations as evidenced by the leading role played by Nigeria in negotiating the first Lomé Convention. It seems possible that Nigeria may also have a leading influence in determining the reaction of other African states to the debt crisis. Third, Nigeria has taken an ‘independent’ line in dealing with its debt obligations, preferring to keep the IMF at arm's length. Fourth, Nigeria has helped to pioneer the use of techniques such as countertrade and partial default in the management of its debt crisis. This paper surveys the politics of Nigerian debt with a view firstly to assessing what light it throws on the merits and demerits of the IMF medicine for indebtedness and, secondly, to determine whether or not it has produced any viable alternatives to this medicine.