THE ROLE OF THE LAWYER IN EXTERNAL DEBT MANAGEMENT
Lee C. Buchheit
Reference: Document No.5, October 1995)
For many countries, the management of an external borrowing program
is one of the most important responsibilities of the government. When
it is handled properly, the benefits for the country can be very gratifying.
When it is handled badly, the consequences can be equally visible -
contraction of living standards, inflation, devaluation, unemployment
and so forth. The massive sovereign debt problems of the 1980s and early
1990s are eloquent testimony to the terrible price that countries must
pay when their external debt problems get out of hand.
Even at the level of individual credit transactions, the difference
between a well-negotiated agreement and a poor one can be very significant.
A reduction of 50 basis points in the interest rate margin can mean
millions of dollars in savings over the life of the loan. A skillfully
negotiated negative pledge clause can mean the difference between having
access to secured financings in the future rather than having to pay
very high rates for unsecured facilities.
The importance of a country's external borrowing program should drive
the seriousness with which it recruits and trains the professionals
that will be in charge of implementing the program. Because all credit
facilities are, in the final analysis, legal relationships between the
lenders and the borrower, lawyers must participate in this process to
some extent. The prudent borrower, however, will rely upon its legal
advisers as an integral part of its debt management team throughout
the entire borrowing process.
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