Ep 23 ft. Lee Buchheit, Joyce Chang, and Jeromin Zettelmeyer
Clauses & Controversies
Debt Relief Measures and the Crumpled Zone Feature in Sovereign Debt Instruments
Sovereign debt instruments often have contingency features to provide debt relief in certain conditions. These features aim to prevent full-scale debt restructuring, which can lead to banking, political, and social crises. The intention is not to reduce the principal owed, but to create a crumpled zone that can absorb temporary financial shocks without causing a complete restructuring. This benefits everyone involved. However, these instruments also face criticism.
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