Academic and policy debates about the multi-trillion-dollar sovereign debt markets presume these markets are unique. The reason is that sovereigns differ from other borrowers. To the extent observers look elsewhere for guidance, they turn to corporate debt as a comparison. For example, official actors have repeatedly intervened in sovereign debt markets by prodding market participants to draft loan contracts that simulate aspects of corporate bankruptcy. We argue that the conventional view of sovereign debt—though useful to a point—has substantially and unjustifiably limited the academic and policy agenda. Rather than dwell on the unique characteristics of sovereign borrowers, we examine the practices and incentives of sovereign lenders. We show that, when viewed through this lender-focused prism, sovereign debt has as much or more in common with consumer than with corporate debt. Using consumer debt as a metaphor, we reveal gaps in the debate over how to reform sovereign debt markets. First, assessments of the sustainability of sovereign debt presently—and unjustifiably—overlook the negative consequences of excessive debt for the borrower’s citizens. Second, reform initiatives designed to promote “responsible lending” lack clearly articulated goals, an omission that will impair the development of a coherent reform agenda. While not a perfect metaphor, experience with consumer lending and financial regulation can help fill these gaps in our understanding of sovereign lending, producing a clearer vision of the roles and responsibilities of lenders in sovereign debt markets.
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