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Gaming Out Sovereign Default When China Is a Major Creditor

By Carl Ross

White Papers

17 July 2019

Executive Summary

Game theory is a useful framework for modeling aspects of sovereign debt recoveries, given that it models the interactions among debtors and creditors in the lending/borrowing “game.” While there is a long-established set of precedents for Paris Club (U.S. & European) and multilateral (IMF, etc) creditors’ actions, we still have little available information about how China will act in debt negotiations. The increasing presence of China as a single large bilateral creditor in our markets, therefore, is worth modeling to see what kind of postures they might take. As commercial lenders alongside sovereign and multi-lateral lenders, we and our investors have a stake in the possible answers provided.

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Disclaimer: The views expressed are the views of Carl Ross through the period ending July 2019, and are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.
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