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Too Little, Too LateThe Quest to Resolve Sovereign Debt Crises$
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Martin Guzman, José Antonio Ocampo, and Joseph E. Stiglitz

Print publication date: 2016

Print ISBN-13: 9780231179263

Published to Columbia Scholarship Online: January 2017

DOI: 10.7312/columbia/9780231179263.001.0001

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Private Creditor Power and the Politics of Sovereign Debt Governance

Private Creditor Power and the Politics of Sovereign Debt Governance

(p.56) Chapter 3 Private Creditor Power and the Politics of Sovereign Debt Governance
Too Little, Too Late

Skylar Brooks

Domenico Lombardi

Columbia University Press

Recent economic and legal developments highlight the longstanding need for an international framework to facilitate sovereign debt restructuring. Yet, despite the repeated and ongoing efforts of governments and international organizations, such a framework has not yet been created. We examine attempts to create debt restructuring arrangements in the 1930s, 1970s, and early 2000s, focusing mainly on the International Monetary Fund’s (IMF’s) attempt to establish a sovereign debt restructuring mechanism (SDRM) in 2001-2003. Here, the key question is why the SDRM failed despite growing recognition of the need for such a mechanism as well as strong support from key officials within the IMF, the US Treasury Department, and G7 governments. Drawing on these historical cases, we argue that private creditor opposition best explains the failure to create a sovereign debt restructuring framework. Private creditor preferences have shaped this outcome through two distinct but intersecting forms of power: instrumental and structural. Instrumentally, creditors engage in lobbying and strategic reform to preempt more far-reaching measures. Structurally, private creditor preferences are internalized by states with systemically important financial markets and states that rely on international markets for their borrowing.

Keywords:   Public Debt, Private Power, Governance

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