The Role of the Official Sector in Sovereign Debt Workouts

As tar babies go, few have proven stickier for the official sector than the plight of private sector lenders trying to recover their bad loans to foreign governments. Inevitably, these lenders have looked to their own governments for succor and protection against defaulting sovereign debtors. At several points and in several ways over the last two centuries, the official sector has tried to detach itself from this problem, only to discover how relentlessly adhesive it can be. The motivations for the official sector to involve itself in the affairs of private lenders have changed over this period. During the nineteenth century, the governments of countries in which the private lenders were located ( Creditor Governments ) would occasionally champion the cause of their citizen debtholders in response to domestic political pressure from those citizens. In some cases, the Creditor Governments\u27 motives were less benign. Protecting private debtholders, for example, was the ostensible justification for certain Creditor Governments assuming what one scholar has called the orderly administration of the debtor\u27s fiscal affairs, as by the United States in the Caribbean and bK England or the great powers in Egypt, Greece, Serbia, Turkey, and elsewhere. In this context, of course, orderly administration meant running all or a portion of the debtor country\u27s finances. [CONT