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Inefficient private renegotiation of sovereign debt

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  • Kletzer, Kenneth M.

Abstract

The 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.

Suggested Citation

  • Kletzer, Kenneth M., 1990. "Inefficient private renegotiation of sovereign debt," Policy Research Working Paper Series 441, The World Bank.
    • Handle: RePEc:wbk:wbrwps:441
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January.
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    14. repec:bla:jfinan:v:44:y:1989:i:5:p:1335-50 is not listed on IDEAS
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    Cited by:

    1. Brian D. Wright & Kenneth M. Kletzer, 2000. "Sovereign Debt as Intertemporal Barter," American Economic Review, American Economic Association, vol. 90(3), pages 621-639, June.
    2. Kletzer, Kenneth M. & Wright, Brian D., 1998. "Sovereign Debt as Intertemporal Barter," Santa Cruz Department of Economics, Working Paper Series qt4qg3c42v, Department of Economics, UC Santa Cruz.

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