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    Undisclosed Debt Sustainability
    14 Oct 2019Working Paper Summaries

    Undisclosed Debt Sustainability

    by Laura Alfaro and Fabio Kanczuk
    Presenting a scenario in which non-Paris Club lending and borrowing is fully disclosed, this study illustrates that transparency has potential effects of decreased debt sustainability for investors such as China, and significant welfare gains for recipient countries. Effects are particularly strong if the debt is large.
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    Author Abstract

    Over the past decade, non–Paris Club creditors, notably China, have become an important source of financing for low- and middle-income countries. In contrast with typical sovereign debt, these lending arrangements are not public, and other creditors have no information about their magnitude. We transform the traditional sovereign debt and default model to quantitatively study incomplete information arrangements and find they greatly reduce traditional/Paris Club creditors’ debt sustainability. Disclosure of nontraditional debt would imply significant welfare gains for the recipient countries but would reduce its sustainability. We discuss the implications of nontraditional lending on standard assumptions of sovereign debt models.

    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: September 2019
    • HBS Working Paper Number: HBS Working Paper #20-043
    • Faculty Unit(s): General Management
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    Laura Alfaro
    Laura Alfaro
    Warren Alpert Professor of Business Administration
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