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Email this citationCIAO DATE: 08/05
Domestic and External Debt: The Doomed Quest for Equal Treatment
Anna Gelpern and Brad Setser
May 2005
Abstract
"Equality" has the ring of a basic value, an incontrovertible virtue. In international finance, equal treatment is enshrined in treaties and contracts. Of all the equal treatment aspirations in finance, none seems more essential to a lawyer than equal treatment of creditors holding identical legal instruments: if one is to suffer a default, surely so should the others; restructuring options available to one must be open to all without regard to the creditor's identity. Yet in the world of sovereign debt, local and foreign investors buying the same paper rarely achieve what anyone would recognize as equal treatment.
Until recently, governments borrowed from domestic residents and foreign investors using very different instruments. Residents bought "domestic debt"--paper denominated in local currency and governed by domestic law. Foreign investors preerred "external debt," which offered foreign currency and foreign law.
