Nailing the Flag to the Mast – Promises of Super-Priority in Public Debt

11 Pages Posted: 8 Aug 2019

See all articles by Mihalis Gousgounis

Mihalis Gousgounis

Cleary Gottlieb Steen & Hamilton LLP

Mitu Gulati

University of Virginia School of Law

Lee C. Buchheit

Center for Contract and Economic Organization

Date Written: August 5, 2019

Abstract

Confronted with eroding market confidence in a country's debt obligations, what's a local politician to do? Major changes to fiscal policies are inevitably controversial back home. Securing financial support from multilateral official sector entities usually involves knuckling under to unpopular economic reforms. But there is one measure all politicians can take quickly and cheaply – cross their hearts, hope to die, and solemnly promise to treat debt service payments as the first, the highest and the most sacred priority in the use of public funds. The question is, what are such promises worth in practice? We argue not much.

Keywords: priority promises, sovereign debt

JEL Classification: H12, H74, H81, K12, K2, F34, G15

Suggested Citation

Gousgounis, Mihalis and Gulati, Mitu and Buchheit, Lee C., Nailing the Flag to the Mast – Promises of Super-Priority in Public Debt (August 5, 2019). Duke Law School Public Law & Legal Theory Series No. 2019-51, Available at SSRN: https://ssrn.com/abstract=3432139 or http://dx.doi.org/10.2139/ssrn.3432139

Mihalis Gousgounis (Contact Author)

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza
New York, NY 10006
United States

Mitu Gulati

University of Virginia School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Lee C. Buchheit

Center for Contract and Economic Organization ( email )

New York, NY

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