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Averting defaults in turbulent times: controversies over the League of Nations preferred creditor status

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  • Flores Zendejas, Juan

Abstract

Loans by the IMF are considered to have “preferred creditor status”. However, given the potential distortions for the allocation of resources in IMF lending, the current debt crisis in Greece has raised new questions about the need for such treatment. This paper brings a historical dimension to the debate and analyzes the link between a multilateral's preferred creditor status and its capacity to support countries in financial distress. During the early 1930s, the League of Nations attempted to secure a preferred status for the loans it promoted. At the onset of the Great Depression, while these loans were not legally senior, governments granted the League loans a de facto preferred status under the assumption that averting default would foster renewed support from the League. However, when support did not materialize, the loans' exceptional treatment vanished, further weakening the position of the League to secure emergency lending.

Suggested Citation

  • Flores Zendejas, Juan, 2017. "Averting defaults in turbulent times: controversies over the League of Nations preferred creditor status," Working Papers unige:98451, University of Geneva, Paul Bairoch Institute of Economic History.
    • Handle: RePEc:gnv:wpaper:unige:98451
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    References listed on IDEAS

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    More about this item

    Keywords

    Sovereign defaults; Preferred creditor status; IMF; Sovereign debt markets;
    All these keywords.

    JEL classification:

    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-

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