Christoph Trebesch (Kiel Institute, RA "Global Macroeconomics and Global Governance" and CEPR)
We study the implicit seniority structure of sovereign debt, using new data on missed payments (arrears) towards six types of external creditors. The data reveal a clear pecking order of sovereign debt repayment and default. As expected, at the top are multilateral official creditors such as the IMF and the World Bank, who are least likely to be defaulted upon. Surprisingly, bilateral official creditors are junior to sovereign bondholders, especially in the period after 1990. Most junior are commercial banks and trade creditors. This pecking order is confirmed after controlling for a country's debt structure, economic fundamentals, and time and country fixed effects. The seniority structure also holds when studying the outcome of sovereign debt restructurings, by comparing creditor losses (haircuts) on private and official external debt: On average, private creditors face significantly lower haircuts than official creditors. Our results pose a challenge for the theoretical literature on sovereign debt.
Matthias Schlegl (LMU Munich and University of Osaka) — Christoph Trebesch (Kiel Institute and CEPR) — Mark L.J. Wright (Fed Minneapolis and NBER)