Building a Better Seating Chart for Sovereign Restructurings

44 Pages Posted: 17 May 2006

See all articles by Anna Gelpern

Anna Gelpern

Georgetown University Law Center


Every sovereign debt restructuring in recent memory has wrestled with the problem of inter-creditor equity. Governments have discriminated among creditors in ways that were hard to predict and often were not revealed until after a debt default. In contrast, debts of firms, individuals and even localities are ranked in order of priority established by contract and statute. This ranking is known at borrowing, generally corresponds to the order of repayment in bankruptcy liquidation, and helps define the creditors' relative bargaining power in reorganization. Without a bankruptcy backstop, most debts of national governments are legally equal. Yet in practice, sovereign immunity empowers a government to choose the order of repayment among its creditors based on political imperatives, financing needs, reputational concerns or any other considerations. A transparent, enforceable priority system for sovereign debt could reduce the risk of involuntary subordination, the attraction of lending to overindebted governments and the need for collateral. When all else fails, such a system could make restructuring less messy. But an effort to imagine sovereign priorities shows both the utility and the limits of domestic bankruptcy as a source for solutions to sovereign debt crises. This article suggests that while incremental improvement is possible and desirable, in the sovereign context, the most robust priority structures are doomed to fail.

Keywords: sovereign debt, emerging markets, sovereign bankruptcy, international law, IMF, Latin America, Argentina

JEL Classification: F34, F36, K29, K33

Suggested Citation

Gelpern, Anna, Building a Better Seating Chart for Sovereign Restructurings. Emory Law Journal, Vol. 53, 2004. Available at SSRN:

Anna Gelpern (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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