Preferred and Non-Preferred Creditors
International financial institutions (IFIs) generally enjoy preferred creditors treatment (PCT). Although PCT rarely appears in legal contracts, when sovereigns restructure bilateral or commercial debts they normally pay IFIs in full. This paper pr...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/578451563797490303/Preferred-and-Non-Preferred-Creditors http://hdl.handle.net/10986/32125 |
| Summary: | International financial institutions
(IFIs) generally enjoy preferred creditors treatment (PCT).
Although PCT rarely appears in legal contracts, when
sovereigns restructure bilateral or commercial debts they
normally pay IFIs in full. This paper presents a model where
a creditor, such as an IFI, that can commit to lend limited
amounts at the risk-free rate and can refrain from lending
into arrears is always repaid and adds value. The analysis
suggests that IFIs should not mimic commercial lenders, but
exploit their complementarity, even if banning commercial
borrowing can sometimes be optimal. IFIs should also focus
on countries with limited market access and should not be
forced into debt restructurings. |
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