As part of the Vilfredo Pareto Research Seminar series, the International Economics Department at the Geneva Graduate Institute is pleased to invite you to a public talk given by Ugo Panizza, Professor of Economics and Pictet Chair in Finance and Development at the Graduate Institute.
He will present his work titled On the Benefits of Repaying, joint with Francesca Caselli, Matilde Faralli and Paolo Manasse.
Abstract: This paper studies whether countries benefit from servicing their debts during times of widespread sovereign defaults. Colombia is typically regarded as the only large Latin American country that did not default in the 1980s. Using archival research and formal econometric estimates of Colombia's probability of default, we show that in the early 1980s Colombia's fundamentals were not significantly different from those of the Latin American countries that defaulted on their debts. We also document that the different path chosen by Colombia was due to the authorities' belief that maintaining a good reputation in the international capital market would have substantial long-term payoffs. We show that the case of Colombia is more complex than what is commonly assumed. Although Colombia had to re-profile its debts, high-level political support from the US allowed Colombia to do so outside the standard framework of an IMF program. Our counterfactual analysis shows that in the short to medium run, Colombia benefited from avoiding an explicit default. Specifically, we find that GDP growth in the 1980s was higher than that of a counterfactual in which Colombia behaved like its neighboring countries. We also test whether Colombia's behavior in the 1980s led to long-term reputational benefits. Using an event study based on a large sudden stop, we find no evidence for such long-lasting reputational gains. We find that GDP growth in the 1980s was higher than that of a counterfactual in which Colombia behaved like its neighboring countries. We also test whether Colombia's behavior in the 1980s led to long-term reputational benefits. Using an event study based on a large sudden stop, we find no evidence for such long-lasting reputational gains. We find that GDP growth in the 1980s was higher than that of a counterfactual in which Colombia behaved like its neighboring countries. We also test whether Colombia's behavior in the 1980s led to long-term reputational benefits. Using an event study based on a large sudden stop, we find no evidence for such long-lasting reputational gains.
To access the paper, please click here.
About the Speaker
Ugo Panizza is the Professor of Economics and Pictet Chair in Finance and Development at the Graduate Institute of International and Development Studies in Geneva. He is also the Director of the International Centre for Monetary and Banking Studies (ICMB), a Vice President of CEPR, Fellow of the Fondazione Luigi Einaudi, and Editor of Oxford Open Economics and International Development Policy.
Prior to joining the Institute, he was the Chief of the Debt and Finance Analysis Unit at the United Nations Conference on Trade and Development (UNCTAD) and a Senior Economist in the Research Department of the Inter-American Development Bank. He also worked at the World Bank and taught at the American University of Beirut and at the University of Torino.