Sovereign Debt: 200 years of creditor losses

We study sovereign external debt crises with a focus on creditor losses, or "haircuts". Our sample covers 321 sovereign debt restructurings with external private creditors over 200 default spells during 1815-2020. We show that creditor losses vary widely (from none to 100%), but “serial restructurings”, meaning two or more debt exchanges in the same default spell, are on the rise. To account for the increasing number of debt renegotiations during a single crisis, we introduce the “Bulow-Rogoff haircut” – a cumulative measure that captures the combined creditor loss across all restructurings during a debt crisis. Using this measure, we highlight that longer debt crises deliver larger haircuts, both in history and today, and that creditor losses have been strikingly stable over the past 200 years. In this encompassing sample, the average haircut has been around 45%, with a standard deviation of around 30%. We examine past predictors for the size of haircuts and identify some “rules of thumb” applicable to future defaults, Poorer countries, first-time debt issuers, and those that borrowed heavily from external creditors all record significantly higher haircuts in case of a default. Geopolitical shocks - such as wars, revolutions, or the break-up of empires – deliver the deepest haircuts. (Geo-)political disasters are often investment disasters.