The Power of Private Creditors and the Need for Reform of the International Financial Architecture

Abstract

This chapter conceptualises the power that private creditors have when dealing with Low- and Middle-Income Countries (LMIC) as sovereign debtors and the implications this has for questions of institutional design and reform of the International Financial Architecture (IFA). The starting positions of sovereign debtors and private creditors are unequal in more ways than just the distinct nature of each one of the parties. This chapter argues that private creditors hold relational and structural power over LMIC and describes what this looks like when lending, restructuring, and trying to push or inhibit IFA reform. It further argues that under today's highly financialised form of financial capitalism, a quasi-legal, soft-law approach is the best reform to reduce these inequalities in starting positions.