Inefficient private renegotiation of sovereign debt
AbstractThe negotiation of sovereign debt repayments and of new loans after default may yield inefficient outcomes that justify intervention by creditor country governments and international financial institutions. The author analyzes possible distortions arising in renegotiations between private creditors and sovereign borrowers. He argues that legal privileges accorded to existing creditors in their home jurisdictions can distort the flow of resources for capital formation abroad. Seniority privileges for old lenders convey to them some of the social returns from new lending, reducing the potential rewards for those who might provide the new funds. Hence the author urges investigation of official alienation of these privileges, regulatory reform, and introduction of alternative financial instruments that embody opportunities for creditor commitment.
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Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 441.
Date of creation: 31 Oct 1990
Date of revision:
Strategic Debt Management; Economic Theory&Research; Environmental Economics&Policies; Banks&Banking Reform; Financial Intermediation;
Other versions of this item:
- Kletzer, Kenneth, 1989. "Inefficient Private Renegotiation of Sovereign Debt," CEPR Discussion Papers 357, C.E.P.R. Discussion Papers.
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