Working Paper: CEPR ID: DP13692
Authors: Matthias Schlegl; Christoph Trebesch; Mark L. J. Wright
Abstract: Sovereign governments owe debt to many foreign creditors and can choose which creditors to favor when making payments. This paper documents the de facto seniority structure of sovereign debt using new data on defaults (missed payments or arrears) and creditor losses in debt restructuring (haircuts). We overturn conventional wisdom by showing that official bilateral (government-to-government) debt is junior, or at least not senior, to private sovereign debt such as bank loans and bonds. Private creditors are typically paid first and lose less than bilateral official creditors. We confirm that multilateral institutions like the IMF and World Bank are senior creditors.
Keywords: sovereign default; arrears; insolvency; priority; IMF; official debt; sovereign bonds; international financial architecture; pecking order
JEL Codes: F3; F4; F5; G1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Official bilateral government-to-government debt (H63) | Private sovereign debt (H63) |
| Multilateral institutions (IMF, World Bank) (F33) | Creditor haircuts during restructurings (G33) |
| Creditor type (F34) | Patterns of missed payments (G51) |
| Patterns of missed payments (G51) | Creditor haircuts (G33) |