Journal Article

Structuring and Restructuring Sovereign Debt: The Role of Seniority

Patrick Bolton and Olivier Jeanne

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 76, issue 3, pages 879-902
Published in print July 2009 | ISSN: 0034-6527
Published online July 2009 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2009.00541.x
Structuring and Restructuring Sovereign Debt: The Role of Seniority

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We show how the willingness-to-pay problem and lack of exclusivity in sovereign lending may result in an equilibrium sovereign debt structure that is excessively difficult to restructure. A bankruptcy regime for sovereigns can alleviate this inefficiency but only if it is endowed with far-reaching powers to enforce seniority and subordination clauses in debt contracts. A bankruptcy regime that makes sovereign debt easier to restructure without enforcing seniority may decrease welfare.

Keywords: F34

Journal Article.  13383 words.  Illustrated.

Subjects: International Finance

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