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Creating a Framework for Sovereign Debt Restructuring That Works

Martin Guzman and Joseph E. Stiglitz

in Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises

Recent controversies surrounding sovereign debt restructurings show the weaknesses of the current market-based system in achieving efficient and fair solutions to sovereign debt crises. This article ... More

Recent controversies surrounding sovereign debt restructurings show the weaknesses of the current market-based system in achieving efficient and fair solutions to sovereign debt crises. This article reviews the existing problems and proposes solutions. It argues that improvements in the language of contracts, although beneficial, cannot provide a comprehensive, efficient, and equitable solution to the problems faced in restructurings–but there are improvements within the contractual approach that should be implemented. Ultimately, the contractual approach must be complemented by a multinational legal framework that facilitates restructurings based on principles of efficiency and equity. Given the current geopolitical constraints, in the short-run we advocate the implementation of a “soft law” approach, built on the recognition of the limitations of the private contractual approach and on a set of principles – most importantly, the restoration of sovereign immunity – over which there may be consensus. We suggest that in a context of political economy tensions it should be impossible for a government to sign away the sovereign immunity either for itself or successor governments. The framework could be implemented through the United Nations, or it could prompt the creation of a new institution.Less

A Brief History of Sovereign Debt Resolution and a Proposal for a Multilateral Instrument

José Antonio Ocampo

in Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises

The chapter provides a history of debt crises resolution and the rise of the current “non-system,” which mixes the Paris Club for official debts, voluntary renegotiations with private creditors and ... More

The chapter provides a history of debt crises resolution and the rise of the current “non-system,” which mixes the Paris Club for official debts, voluntary renegotiations with private creditors and occasional ad hoc debt-relief initiatives (the Brady Plan and Highly-Indebted Poor Countries and Later Multilateral Debt Relief Initiatives). This system, he argues, not only provides inadequate solutions but does not guarantee equitable treatment, neither of different debtors nor of different creditors. He then proposes a multilateral mechanism for sovereign debt restructuring that offers a sequence of voluntary negotiations, mediation and eventual arbitration with pre-established deadlines, similar in a sense to the World Trade Organization’s dispute settlement mechanism.Less

Count the Limbs: Designing Robust Aggregation Clauses in Sovereign Bonds

Anna Gelpern, Ben Heller, and Brad Setser

in Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises

Count the Limbs: Designing Robust Aggregation Clauses in Sovereign Bonds, by Anna Gelpern, Ben Heller, and Brad Setser

Greek Debt Denial: A Modest Debt Restructuring Proposal and why it was Ignored

Yanis Varoufakis

in Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises

Greek Debt Denial: A Modest Debt Restructuring Proposal and Why It Was Ignored, by Yanis Varoufakis

Making a Legal Framework for Sovereign Debt Restructuring Operational: The Case for a Sovereign Debt Workout Institution

Jürgen Kaiser

in Too Little, Too Late: The Quest to Resolve Sovereign Debt Crises

The chapter discusses the “institutionalization” of a multinational framework for sovereign debt restructuring. In Kaiser’s view, the institutionalization should comply to three basic principles: ... More

The chapter discusses the “institutionalization” of a multinational framework for sovereign debt restructuring. In Kaiser’s view, the institutionalization should comply to three basic principles: first, it needs to restructure debt in a single comprehensive process, with no payment obligations being exempted from the process; second, it needs to allow for an impartial decision making about the terms of any debt restructuring; and third, this decision must be based on an impartial assessment of the debtor’s situation. He claims that there are not many historical precedents for a sovereign debt restructuring which complies with these conditions, but the case of Indonesia in 1969 may be inspiring. He argues that a “Sovereign debt Restructuring Liaison Office” mandated by the UN and run independently from any debtor or creditor interference could be a catalytic element with the potential to overcome the shortcomings of existing procedures. In this view, it could facilitate a comprehensive negotiation format with all stakeholders around the table; it could provide an impartial and thus realistic assessment of the need for debt relief; and it could suggest an un-biased solution. Such an “office” could be established immediately as an outcome of the present UN-General Assembly consultation process and then develop its rules, regulations and infrastructure over time.Less