The ‘Gänseliesel’ (Goose Girlis), a historical fountain erected in 1901, represents the most well-known landmark of the city of Goettingen.

Lending and Sovereign Insolvency: A New Criterion to Distribute Losses among Creditors

Juan Pablo Bohoslavsky



This article argues that there are legal and economic justifications for extending the principle of responsibility for granting abusive loans from private law to a general principle of international law and, as such, that it can and should be applied to matters of sovereign insolvency. Employing this rationale, the article develops concrete legal and economic reasons and mechanisms by which the financial losses that any sovereign insolvency imposes on creditors should be distributed among them.

In particular, the article takes the position that loans, which are granted to states without following the most elementary prudential guidelines with regard to the analysis of credit risk and which are granted with the intention of taking unfair advantage at expense of the other creditors, should be totally or partially subordinated to those not classified as abusive in the case of sovereign bankruptcy. While the effects of this principle mostly coincide, in practice, with those of the first-in-time rule, it is argued that insolvent sovereigns and creditors must respect this criterion when proposing, negotiating and agreeing on a restructuring.


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