Structuring and Restructuring Sovereign Debt: The Role of Seniority

62 Pages Posted: 16 Feb 2005 Last revised: 2 Jun 2005

See all articles by Patrick Bolton

Patrick Bolton

Columbia Business School - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Olivier Jeanne

International Monetary Fund (IMF) - Research Department; Ecole Nationale des Ponts et Chaussees (ENPC); Centre for Economic Policy Research (CEPR)

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Date Written: January 2005

Abstract

In an environment characterized by weak contractual enforcement, sovereign lenders can enhance the likelihood of repayment by making their claims more difficult to restructure. We show within a simple model how competition for repayment between lenders may result in sovereign debt that is excessively difficult to restructure in equilibrium. Alleviating this inefficiency requires a sovereign debt restructuring mechanism that fulfills some of the functions of corporate bankruptcy regimes, in particular the enforcement of seniority and subordination clauses in debt contracts.

Suggested Citation

Bolton, Patrick and Jeanne, Olivier, Structuring and Restructuring Sovereign Debt: The Role of Seniority (January 2005). NBER Working Paper No. w11071. Available at SSRN: https://ssrn.com/abstract=653001

Patrick Bolton (Contact Author)

Columbia Business School - Department of Economics ( email )

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HOME PAGE: http://www0.gsb.columbia.edu/faculty/pbolton/

Centre for Economic Policy Research (CEPR)

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National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI)

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HOME PAGE: http://www.ecgi.org

Olivier Jeanne

International Monetary Fund (IMF) - Research Department ( email )

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Ecole Nationale des Ponts et Chaussees (ENPC) ( email )

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75007 Paris
France
+33 1 44 58 28 76 (Phone)
+33 1 44 58 28 80 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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