Creditor-Debtor Interactions in Sovereign Debt Crises

This section discusses creditor-debtor interactions in sovereign debt crises and provides a critical review of the related academic and political debate. As a starting point, we present the broad literature on creditor and investor behavior in financial distress episodes. We then turn to a number of more specific articles that explicitly focus on a key concept in the debate, namely that of “private sector involvement” (PSI) in crisis resolution. In a third step, we depart from the existing literature and propose a new timeline approach to public-private interactions in sovereign debt crises.

The Broad Literature on Private Creditor Behavior in Crises

The last decades have brought about a large body of research on financial crises in general and sovereign debt and default in particular.1 Here, we provide a broad overview of the contributions analyzing the role of private sector behavior during distress episodes. This literature can be grouped into two categories: (1) literature related to the policy debate on a new international financial architecture, including studies on creditor moral hazard; (2) articles that analyze the determinants of capital flows during debt crises, including those on the catalytic effect of IMF lending.

 
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