Principles of Household Debt Restructuring

The IMF staff position note on household debt restructuring is available  here.

Another interesting contribution is by Arellano and Kocherlakota, “Internal Debt Crises and Sovereign Default.”

4 replies on “Principles of Household Debt Restructuring”

Perhaps I’m oversimplifying but doesn’t the report repeatedly say things about how debt forgiveness may be an option, but only for countries with the fiscal space to afford it?

Even ignoring the other pitfalls and problems with any scheme beyond the first option mentioned in the report, which is essentially nothing more than a proposal for more reasonable bankruptcy, does Ireland have the fiscal space to afford it?

And doesn’t it imply that a) pretty detailed information on the current loans outstanding for the whole system needs to be available before you start and b) this is a government backed loan program, not a loan forgiveness program just for government banks.

On that basis, don’t the banks have to publish their loan books first? And if there is a forgiveness program, won’t it be available to all banks on a voluntary basis? If that is so, the fiction that government will be on the hook just that half the mortgages which sit in pillar banks will be exposed. Instead the government will be on the hook for all the loans that qualify, opening up yet another line whereby Ireland’s taxpayer is bailing out UK and German banks. It also means the €6bn total cost is not credible.

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