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Year: 2012 Publisher: Washington, D.C., The World Bank,
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This paper uses a large cross-country dataset to empirically examine factors associated with sovereign defaults on external private creditors and expropriation of foreign direct investments in developing countries since the 1970s. In the long run, sovereign defaults and expropriations are likely to occur in the same countries. In the short run, however, these events are uncorrelated. Defaults are more likely to occur following periods of rapid debt accumulation, when growth is low, and in countries with weak policy performance, and defaults are not strongly persistent over time. In contrast, expropriations are not systematically related to the level of foreign direct investment, to growth, or to policy performance. Expropriations are however less likely under right-wing governments, and are strongly persistent over time. There is also little evidence that a history of recent defaults is associated with expropriations, and vice versa. The paper discusses the implications of these findings for models that emphasize retaliation as means for sustaining sovereign borrowing and foreign investment in equilibrium, as well as the implications for political risk insurance against the two types of events.
Bankruptcy and Resolution of Financial Distress --- Debt Markets --- Emerging Markets --- Expropriations --- External Debt --- Foreign direct investment --- Investment and Investment Climate --- Macroeconomics and Economic Growth --- Private creditors --- Sovereign defaults --- Sovereign theft
Book
Year: 2002 Publisher: Washington, D.C., The World Bank,
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Mckenzie econometrically ascertains the determinants of default to the International Bank for Reconstruction and Development (IBRD) through panel logit analysis. Creditworthiness with a lag of one period is determined by the extent of arrears to private creditors, the proportion of total debt service that is being paid, the government budget deficit, the extent of military involvement in the government of a country, and by the G7's current account balance. Default to the IBRD falls into a graduated hierarchy, whereby default occurs first to Paris Club and commercial bank creditors, with subsequent default triggered by portfolios with high proportions of IBRD and short-term debt, as well as the factors mentioned above. Default to these other creditor groups can be explained by more traditional country risk variables, although Mckenzie's analysis highlights the importance of political and external factors in explaining default to all creditors studied. He finds sovereign default to be a state-dependent process, whereby the repayment behavior of a country changes once it enters into default. Operationally, Mckenzie arrives at a model that can be used to assess short-term creditworthiness, although data imperfections and availability still limit the usefulness of the model for some countries. Longer-term risk assessment proves more difficult, which raises operational questions for the IBRD. This paper-a product of the Credit Risk Division, Office of the Senior Vice President and Chief Financial Officer-is part of a larger effort in the Bank to monitor the creditworthiness of IBRD borrowers. The author may be contacted at mcken@stanford.edu.
Arrears --- Bank Creditors --- Bank Policy --- Borrowers --- Commercial Bank --- Country Risk --- Creditor --- Creditworthiness --- Debt Markets --- Debt Service --- Default --- Exchange --- Finance and Financial Sector Development --- Financial Literacy --- Government Budget --- Government Budget Defic International Bank --- Portfolio --- Private Creditors --- Repayment --- Short-Term Debt --- Sovereign Default --- Total Debt
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