TY  - JOUR
AU  - Dias,Daniel A.
AU  - Richmond,Christine J.
AU  - Wright,Mark L.J.
TI  - The Stock of External Sovereign Debt: Can We Take the Data At ‘Face Value’?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17551
PY  - 2011
Y2  - October 2011
UR  - http://www.nber.org/papers/w17551
L1  - http://www.nber.org/papers/w17551.pdf
N1  - Author contact info:
Daniel A. Dias
University of Illinois at Urbana Champaign
and CEMAPRE
109 David Kinley Hall
1407 W. Gregory Dr. - MC707
Urbana, IL, 61801
E-Mail: ddias@illinois.edu

Christine J. Richmond
International Monetary Fund
700 19th Street NW
Washington, DC 20431
E-Mail: CRichmond@imf.org

Mark L. J. Wright
Federal Reserve Bank of Chicago
230 South LaSalle St.
Chicago, IL 60604
E-Mail: mlwright@econ.ucla.edu
AB  - The stock of sovereign debt is typically measured at face value. This is a misleading indicator when debts are issued with different contractual forms. In this paper we construct a new measure of the stock of external sovereign debt for 100 developing countries from 1979 to 2006 that is invariant to contractual form, and illustrate five problems with debt stocks measured at face value. First, we show that correcting for differences in the contractual form of debt paints a very different quantitative, and in some cases also qualitative, picture of the stock of developing country external sovereign debt. Second, rankings of indebtedness across countries, which were historically used to define eligibility for debt forgiveness, are sometimes inverted once we correct for differences in contractual form. Third, the empirical performance of the benchmark quantitative model of sovereign debt deteriorates by between 40 to 70 percent once model-consistent measures of debt are used. Fourth, we show how the spread of aggregation clauses in debt contracts which award creditors voting power in proportion to the contractual face value may introduce inefficiencies into the process of restructuring sovereign debts. Fifth, we show how the use of contractual face values gives issuing countries the ability to manipulate their debt stock data, and illustrate the use of these techniques in practice.
ER  -