Sovereign Debt pp 311-324 | Cite as

Multilateral Debt

  • Mauro Megliani
Chapter
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Abstract

Loans contracted with multilateral financial institutions are generally excluded from restructuring processes, consistently with these creditors’ policy of not providing debt relief. The reason underlying this policy is that any relief, whether soft (such as a rescheduling) or hard (such as a reduction), negatively affects the financial capacity of the multilateral lenders, undermining in particular their role as “lender of last resort” in the international financial system. As a result, the debts owed to these institutions enjoy, although to different degrees, preferential treatment in relation to bilateral and private loans. The theoretical justification for this treatment is the “net new lender theory”, by which it is unreasonable to restructure a debt owed to a creditor who is available to provide more resources than those that could be saved through a restructuring plan. This is particularly true for the International Monetary Fund (IMF), which acts as a kind of lender of last resort, providing resources to countries facing temporary liquidity problems, and also as a surrogate for a sovereign bankruptcy court, providing new resources to countries undergoing restructuring processes.

Keywords

International Monetary Fund External Debt Debt Relief Loan Contract International Development Association 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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Copyright information

© Springer International Publishing Switzerland 2015

Authors and Affiliations

  • Mauro Megliani
    • 1
  1. 1.Catholic UniversityMilanItaly

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