The preferred creditor puzzle in sovereign debt markets (VOX)

Countries almost always repay loans from the IMF and the World Bank before others, even though this preferred treatment rarely appears in legal contracts. This column presents a framework to investigate this puzzle. It argues that the ability to restrict lending allows international financial institutions to lend at the risk-free rate and creates incentives for repayment. IMF and World Bank loans are thus complementary to commercial lending.

https://voxeu.org/article/preferred-creditor-puzzle-sovereign-debt-markets

Tito Cordella, Andrew Powell

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