Creditors' losses versus debt relief: Results from a decade of sovereign debt crises

This paper computes debt relief and investor losses associated with the major emerging market defaults and debt restructurings of the 1998-2005 period. Investor losses ranged from 13% to 75%, based on comparing the market value of the new debt with the net present value of the old debt evaluated at the sovereign yield immediately following the debt exchange. However, the net present value of debt relief from a country perspective, calculated using estimated country borrowing rates in normal times, was typically lower. In many cases, countries could have lowered their remaining debt burden,;, for given investor losses, by making their debt restructuring offers more front-loaded. The fact that they did not do so suggests that debtor countries did not expect to enjoy stable access to international credit markets even outside the typical exclusion period following a default.