RESPONSIBLE SOVEREIGN LENDING
AND BORROWING
LEE C. BUCHHEIT*
G. MITU GULATI**
I. INTRODUCTION ...................................................................................................... 64
A. Sovereign Debt and the Law ....................................................................... 65
B. The Current Debate ..................................................................................... 66
1. Emotive Issues.................................................................................... 66
2. Prosaic Issues...................................................................................... 68
II. UNIQUE FEATURES OF SOVEREIGN DEBT........................................................ 69
A. Intergenerational Tensions.......................................................................... 69
B. Government Officials as Agents ................................................................. 70
C. Mixed Motivations of Certain Lenders ...................................................... 71
D. The Absence of a Formal Bankruptcy Mechanism .................................. 72
E. The Sovereign Debtor as a Defendant....................................................... 73
III. RESPONSIBLE SOVEREIGN LENDING ............................................................... 74
A. The Context................................................................................................... 74
1. The Political Flesh Is Weak .............................................................. 75
2. The Fiduciary Duty Is High .............................................................. 75
3. Financial Sophistication May Be Absent ........................................ 75
4. The Local Law Will Not Help .......................................................... 75
5. A Lender’s Capacity for Rationalization Can Be Fathomless ..... 76
6. Intercreditor Issues. ........................................................................... 76
B. The Duties of Responsible Lenders ........................................................... 76
1. Honesty ............................................................................................... 76
2. Realistic Assessments........................................................................ 77
3. Pre-Disbursement Diligence............................................................. 77
4. Post-Disbursement Diligence ........................................................... 78
5. Aligned Incentives ............................................................................. 78
6. Sanctions Regimes ............................................................................. 79
7. Renegotiation ..................................................................................... 79
IV. RESPONSIBLE SOVEREIGN BORROWING......................................................... 79
A. The Context................................................................................................... 80
Copyright © 2010 by Lee C. Buchheit and G. Mitu Gulati.
This article is also available at http://www.law.duke.edu/journals/lcp.
* Partner, Cleary Gottlieb Steen & Hamilton LLP (New York).
** Professor, Duke University School of Law. The authors wish to thank Seth Reynolds for his
research assistance in the preparation of this paper. The views expressed are those of the authors and
do not represent the views of the United Nations Conference on Trade and Development.
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4. The Local Law Will Not Help .......................................................... 75
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