Sovereign Debt: Now What?

Abstract

The sovereign debt restructuring regime looks like it is coming apart. Changing patterns of capital flows, old creditors’ weakening commitment to past practices, and other stakeholders’ inability to take over, or coalesce behind a viable alternative, have challenged the regime from the moment it took shape in the mid-1990s. By 2016, its survival cannot be taken for granted. Crises in Argentina, Greece, and Ukraine since 2010 exposed the regime’s perennial failures and new shortcomings. Until an alternative emerges, there may be messier, more protracted restructurings, more demands on public resources, and more pressure on national courts to intervene in disputes that they are ill-suited to resolve. Initiatives emanating from wildly different actors — the United Nations General Assembly, the International Monetary Fund, the International Capital Market Association and the Jubilee coalition, among others — reflect broad-based demand for reform. Now is the time to reconsider the institutional architecture of sovereign debt restructuring, along with the norms and alliances that underpin it. In this symposium essay, I suggest broad criteria for evaluating a successor regime, and offer a package of incremental measures to advance sustainability, fairness, and accountability.

Keywords: Sovereign Debt, Sovereign Bonds, Bankruptcy, Contract Reform, IMF, UN, Financial Crisis, Argentina, Greece, Ukraine

JEL Classification: K12, K22, G01, G33, H63, F33, F34, F55