The stock of external sovereign debt: Can we take the data at ‘face value’?

Journal article

Daniel A. Dias, Christine Richmond, Mark L.J. Wright
Journal of International Economics, vol. 94(1), 2014 Sep, pp. 1-17

DOI: 10.1016/j.jinteco.2014.05.001

Cite

APA Click to copy
Dias, D. A., Richmond, C., & Wright, M. L. J. (2014). The stock of external sovereign debt: Can we take the data at ‘face value’? Journal of International Economics, 94(1), 1–17. https://doi.org/10.1016/j.jinteco.2014.05.001

Chicago/Turabian Click to copy
Dias, Daniel A., Christine Richmond, and Mark L.J. Wright. “The Stock of External Sovereign Debt: Can We Take the Data at ‘Face Value’?” Journal of International Economics 94, no. 1 (September 2014): 1–17.

MLA Click to copy
Dias, Daniel A., et al. “The Stock of External Sovereign Debt: Can We Take the Data at ‘Face Value’?” Journal of International Economics, vol. 94, no. 1, Sept. 2014, pp. 1–17, doi:10.1016/j.jinteco.2014.05.001.

BibTeX Click to copy

@article{dias2014a,
  title = {The stock of external sovereign debt: Can we take the data at ‘face value’?},
  year = {2014},
  month = sep,
  issue = {1},
  journal = {Journal of International Economics},
  pages = {1-17},
  volume = {94},
  doi = {10.1016/j.jinteco.2014.05.001},
  author = {Dias, Daniel A. and Richmond, Christine and Wright, Mark L.J.},
  month_numeric = {9}
}

Abstract

The stock of sovereign debt is typically measured at face value. Defined as the undiscounted sum of future principal repayments, face values are misleading when debts are issued with different contractual forms or maturities. In this paper, we construct alternative measures of the stock of external sovereign debt for 100 developing countries from 1979 through 2006 that correct for differences in contractual form and maturity. We show that our alternative measures: (1) paint a very different quantitative, and in some cases also qualitative, picture of the stock of developing country external sovereign debt; (2) often invert rankings of indebtedness across countries, which historically defined eligibility for debt forgiveness; (3) indicate that the empirical performance of the benchmark quantitative model of sovereign debt deteriorates by roughly 50% once model-consistent measures of debt are used; (4) show how the spread of aggregation clauses in debt contracts that award creditors voting power in proportion to the contractual face value may introduce inefficiencies into the process of restructuring sovereign debts; and (5) illustrate how countries have manipulated their debt issuance to meet fiscal targets written in terms of face values.

Keywords: Sovereign debt; Contractual face value; Zero-coupon equivalent face value

JEL classification: E01; F30; F34; H63