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  5. Hidden Defaults

AEA Papers and Proceedings

ISSN 2574-0768 (Print) | ISSN 2574-0776 (Online)

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Hidden Defaults

  • Sebastian Horn
  • Carmen M. Reinhart
  • Christoph Trebesch
AEA Papers and Proceedings
vol. 112, May 2022
(pp. 531–35)
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Abstract

China's lending boom to developing countries is morphing into defaults and debt distress. Given the secrecy surrounding China's loans, the associated defaults remain "hidden," as missed payments and restructuring details are not disclosed. We construct an encompassing dataset of sovereign debt restructurings with Chinese lenders and find that these credit events are surprisingly frequent, exceeding the number of sovereign bond or Paris Club restructurings. Chinese lenders follow a resolution approach reminiscent of 1980s Western lenders; they seldom provide deep debt relief with face value reduction. If history is any guide, multiyear debt workouts with serial restructurings lie in store.

Citation

Horn, Sebastian, Carmen M. Reinhart, and Christoph Trebesch. 2022. "Hidden Defaults." AEA Papers and Proceedings, 112: 531–35. DOI: 10.1257/pandp.20221002

Additional Materials

JEL Classification

  • F34 International Lending and Debt Problems
  • H63 National Debt; Debt Management; Sovereign Debt
  • O16 Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
  • P34 Socialist Institutions and Their Transitions: Financial Economics