The Stock of External Sovereign Debt: Can We Take the Data At ‘Face Value’?

The stock of sovereign debt is typically measured at face value. Defined as the undiscounted sum of future principal repayments, face values are misleading when debts are issued with different contractual forms or maturities. In this paper, we construct alternative measures of the stock of external sovereign debt for 100 developing countries from 1979 through 2006 that correct for differences in contractual form and maturity. We show that our alternative measures: (1) paint a very different quantitative, and in some cases also qualitative, picture of the stock of developing country external sovereign debt; (2) often invert rankings of indebtedness across countries, which historically defined eligibility for debt forgiveness; (3) indicate that the empirical performance of the benchmark quantitative model of sovereign debt deteriorates by roughly 50% once model-consistent measures of debt are used; (4) show how the spread of aggregation clauses in debt contracts that award creditors voting power in proportion to the contractual face value may introduce inefficiencies into the process of restructuring sovereign debts; and (5) illustrate how countries have manipulated their debt issuance to meet fiscal targets written in terms of face values. JEL CODES: E01, F30, F34, H63. ∗The views expresed in this paper are those of the authors and do not necessarily represent those of the Federal Reserve Bank of Chicago, the Federal Reserve System, the IMF, or IMF policy. The authors thank, without implicating, Marcio Garcia for help researching Brazilian debt issuance; Ben Chabot, Moritz Schularick, François Velde, two anonymous referees, the editor, and numerous seminar participants for comments; and, especially, Aart Kraay, Ibrahim Levent, and Gloria Moreno of the World Bank for help accessing the data used for our paper. The authors thank the Center for International Business and Economic Research (CIBER) at UCLA for research support. Wright also thanks the National Science Foundation for research support under grant SES-1059829. Dias: [email protected]; Richmond: [email protected]; Wright: [email protected].