My new book with Brad Setser on “Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies” will be published in late August.
I have recently finished a new book with Brad Setser on “Bailouts or Bail-ins? Responding to Financial Crises in Emerging Economies”.
The book is being published this month by the Institute for International Economics, jointly with the Council on Foreign Relations; see this link for a preview of the book.
The book presents a systematic analyisis of all the financial crises in emerging market economies in the last decade, of the debate on how to resolve these crises (IMF “bailouts” or bail-ins of private creditors?) and the reform of the international financial architecture after the Mexican and Asian crises. Bailouts refers to IMF rescue packages to countries in financial distress while the term “bail-in” refers to semi-coercive restructurings/reschedulings/reductions of sovereign debts – bank loans, bonds and other claims – owed to private (foreign) creditors. Bail-ins are also at times referred to a PSI or Private Sector Involvement in crisis resolution in the official wonky lingo of the G7/IMF.
After an introductory chapter, the book continues with a chapter on the causes of such crises, comparing the emerging market crises of the last decade (Mexico, Thailand, Indonesia, Malaysia, Korea, Russia, Brazil, Turkey, Argentina, Pakistan, Ukraine, Ecuador, Uruguay). Depending on the specific episode we have observed currency crises, sovereign debt crises, banking crises, corporate sector crises and various combinations of these four types of different crises. The coverage of these cases studies is integrated with the theories of financial crises in emerging market economies.
Next, a chapter reviews the analytical literature on bailins and bailouts and causes of sovereign debt crises, including arguments for an international lender of last resort versus arguments for debt suspensions/standstills as solutions to debt crises. The next chapter presents a systematic empirical analysis of how these crises were resolved, in terms of bail-ins and bailout experiences. Next, we review the evolution of the official sector (G7 and IMF) doctrines and frameworks towards crisis resolution.
The following three chapters cover the open and difficult issues in crisis resolution. First, how to deal with crises – of an illiquidity and/or insolvency type – where there are significant liquidity shortages, including many proposals for addressing these liquidity issues. Second, the issue of the seniority of the claims against a sovereign and the proposals to create a formal seniority regime for such claims. Third, the debate on legal reform of the sovereign debt restructuring mechanism: i.e. the debate on Collective Action Clauses versus a formal international bankruptcy regime for sovereign countries versus a code of conduct approach.
The final chapter of the book presents our recommendations for the reform of the crisis resolution framework. Hard to summarize it all here! You gotta read it!
The book will be on sale at the end of August and all the chapter of the book will also be available in PDF format (readable but not printable files) from the Institute for International Economics web site page on the book.
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