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Sovereign Debt and the Financial Crisis: Will This Time Be Different?

Edited by Carlos A. Primo Braga and Gallina A. Vincelette

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In the wake of the financial crisis of 2008, governments worldwide undertook massive fiscal interventions to stave off what otherwise would have likely been a system-wide financial and economic meltdown. The policy responses engendered significant shifts in growth trajectories and debt sustainability outlooks of both mature and developing economies. For Low Income Countries, post-crisis debt sustainability analyses show an average deterioration of 5-7 percentage points in the present value of public debt-to-GDP ratio in 2009-10 compared with pre-crisis projections, and stay in the area of 30 percent until 2014. Among the LICs, 40 percent face high risk of (or are in) debt distress. In the G20 countries, government debt-to-GDP ratios are expected reach 85 percent by 2014.

The magnitude of public liabilities incurred and the uncertainty surrounding the exit from unprecedented discretionary fiscal stimulus have become a major source of concern about a future crisis. Will the current stringent financial conditions lead to a wave of sovereign debt problems around the world? Or will countries, given their stronger fundamentals compared with previous crises’ episodes, successfully muddle through the crisis?

The objective of the book is to present and discuss policy-relevant research on the current debt challenges which developing, emerging market, and developed economies face. Its value added lies in the integrated approach of drawing on theoretical research and evidence from practitioners’ experience in developing, emerging market, and developed countries.

The study is partially funded by the Debt Management Facility for Low-Income Countries. Contributors involve World Bank staff, other international and multilateral institutions, external researchers.



Part I: A New Wave of Sovereign Debt Crises?

  • Chapter 1: The Sovereign Debt Crisis That Was Not
    Daniel Cohen and Cécile Valadier (Download)
  • Chapter 2: Unpleasant Surprises: Determinants and Risks of Sovereign Default
    Luca Bandiera, Jesús Crespo Cuaresma, and Gallina A. Vincelette (Download)
  • Chapter 3: Finding the Tipping Point: When Sovereign Debt Turns Bad
    Mehmet Caner, Thomas Grennes, and Fritzi Koehler-Geib (Download)
  • Chapter 4: Determinants of Emerging Market Sovereign Bond Spreads
    Dimitri Bellas, Michael G. Papaioannou, and Iva Petrova (Download)
  • Chapter 5: Sovereign Debt Distress and Corporate Spillover Impacts
    Mansoor Dailami (Download)

Part II: The Effects of the Crisis on Debt

  • Chapter 6: Debt Sustainability and Debt Distress in the Wake of the Ongoing Financial Crisis: The Case of IDA-Only African Countries
    Leonardo Hernández and Boris Gamarra (Download)
    Chapter 7: Do Middle-Income Countries Still Have the Ability to Deal with the Global Financial Crisis?
    Ralph Van Doorn, Vivek Suri, and Sudarshan Gooptu (Download)
  • Chapter 8: Small States, the Financial Crisis, and the Aftermath
    Edgardo Favaro, Dörte Dömeland, William O’Boyle, and Tihomir Stucka (Download)
  • Chapter 9: Europe’s Crisis: Origins and Policy Challenges
    Edgardo Favaro, Ying Li, Juan Pradelli, and Ralph Van Doorn (Download)

Part III: Debt Restructuring Mechanisms: Lessons and Beyond

  • Chapter 10: Avoiding Avoidable Debt Crises: Lessons from Recent Defaults
    Yuefen Li, Rodrigo Olivares-Caminal, and Ugo Panizza (Download)
  • Chapter 11: Managing Subnational Credit and Default Risks
    Lili Liu and Michael Waibel (Download)
  • Chapter 12: Restructuring Sovereign Debts with Private Sector Creditors: Theory and Practice
    Mark L. J. Wright (Download)
  • Chapter 13: A Standing Arbitral Tribunal as a Procedural Solution for Sovereign Debt Restructurings
    Christoph G. Paulus (Download)
  • Chapter 14: International Lending of Last Resort and Sovereign Debt Restructuring
    Eduardo Fernández-Arias (Download)

Part IV: Managing Public Debt in Crises: How Experiences Differ

  • Chapter 15: Managing Public Debt and Its Financial Stability Implications
    Udaibir S. Das, Michael G. Papaioannou, Guilherme Pedras, Jay Surti, and Faisal Ahmed (Download)
  • Chapter 16: Public Debt Management in Emerging Market Economies: Has This Time Been Different?
    Phillip R. D. Anderson, Anderson Caputo Silva, and Antonio Velandia-Rubiano (Download)
  • Chapter 17: Crisis Preparedness and Debt Management in Low-Income Countries: Strengthening Institutions and Policy Frameworks
    Dana Weist, Eriko Togo, Abha Prasad, and William O’Boyle (Download)
  • Chapter 18: Public Debt Management and Sovereign Risk during the Worst Financial Crisis on Record: Experiences and Lessons from the OECD Area
    Hans J. Blommestein (Download)


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Last updated: 2011-01-20




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