nep-cis New Economics Papers
on Confederation of Independent States
Issue of 2010‒12‒04
three papers chosen by
Koen Schoors
Ghent University

  1. Government Involvement in Corporate Debt Restructuring: Case Studies from the Great Recession By David A. Grigorian; Faezeh Raei
  2. Assessing the Risk of Private Sector Debt Overhang in the Baltic Countries By Valerie Herzberg
  3. Dualism and growth in transition economies: a two-sector model with efficient and subsidized enterprises By Luigi Bonatti; Kiryl Haiduk

  1. By: David A. Grigorian; Faezeh Raei
    Abstract: The paper examines recent episodes of government involvement in corporate debt restructurings. It argues that corporate debt restructuring is an important step toward recovery from a financial crisis. We then discuss the rationale for, and modalities of, the state intervention in corporate debt workouts through reviewing six countries with large scale corporate debt workouts. Case studies reveal that the costs of corporate sector rescue are significant and in several cases on par with the costs of financial sector bailouts. The paper sheds light on the importance of contingent liabilities and associated risks to government balance sheet from the corporate debt side and emphasizes the need for improved contingency planning for corporations with potential systemic impact.
    Keywords: Asset management , Banking sector , Corporate sector , Cross country analysis , Debt restructuring , Economic recession , Economic recovery , Fiscal policy , Governance , Legislation , Public enterprises ,
    Date: 2010–11–16
  2. By: Valerie Herzberg
    Abstract: Between 2000 and 2007 nonfinancial private sector credit expanded rapidly in the Baltic countries, resulting in a non-negligible build-up of debt. Could this legacy debt hold back the economic recovery of the region? This paper analyzes the setting in each of the three countries and, with the help of an experimental Debt Overhang Index (DOI), draws tentative conclusions for domestic demand.
    Keywords: Baltics , Credit expansion , Cross country analysis , Economic models , Economic recovery , Nonbank financial sector , Private sector , Public debt ,
    Date: 2010–11–09
  3. By: Luigi Bonatti; Kiryl Haiduk
    Abstract: We develop a two-sector growth model distinguishing between a private sector consisting of profit-making firms and a state-controlled sector consisting of subsidized firms. Both sectors produce the same good. The private sector generates learning-by-doing and technological spillovers, while the state-controlled one is technologically obsolete and ‘stagnant’. This distinction allows tracing the dual-economy stage of development observed in transition economies. While in some of them the period in which profit-making and loss-making enterprises coexist was rather brief, some continue to display this pattern because of their industrial legacies and politicoideological preferences. The model predicts that—ceteris paribus—the larger is the initial fraction of the workforce employed in the obsolete sector and the stronger is the degree of ideological hostility towards market forces, the lower is the speed at which a transition economy will converge to the income level of the most advanced countries.
    Keywords: Dual economy, endogenous growth, transitional economies
    JEL: O1 O4 P28
    Date: 2010

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