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A Soft Law Mechanism for Sovereign Debt Restructuring Based on the UN Principles

Guzman, Martin; Stiglitz, Joseph E.

The ultimate goal of sovereign debt restructuring is to restore the sustainability of public debt with high probability. But this is not happening. Since 1970, more than half of the restructuring episodes with private creditors were followed by another restructuring or default within five years — evidence inconsistent with any sensible definition of »restoration of sustainability of public debt with a high probability.« This evidence suggests that relief for distressed debtors is often insufficient for achieving the main goal of a restructuring, delaying the recovery from recessions or depressions, with large negative social consequences. The United Nations General Assembly approved in September 2015 nine principles that should guide sovereign debt restructuring processes. The UN has laid out steps in the right direction. Although in the short term the creation of a multinational statutory framework for debt crises resolution does not seem to be feasible, the UN principles provide a valuable basis for the next stages of the process. This article analyzes the usefulness of those principles. Section 2 discusses how the principles could help in improving the resolution of sovereign debt crises. Section 3 explores a possible way forward along the lines of an incremental approach.


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Friedrich Ebert Stiftung International Policy Analysis

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April 15, 2019


Also presented in seminar “Sovereign Debt Vulnerabilities and the Opportunity for a New Debt Workout Mechanism Building on the UNGA process” at the United Nations in October.