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Creating a Framework for Sovereign Debt Restructuring that Works

Guzman, Martin; Stiglitz, Joseph E.

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.

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Also Published In

Title
Too Little, Too Late: The Quest to Resolve Sovereign Debt Crisis
Publisher
Columbia University Press
DOI
https://doi.org/10.7312/columbia/9780231179263.003.0002

More About This Work

Academic Units
Economics
Business
Published Here
April 15, 2019

Notes

Also presented at the United Nations General Assembly Ad Hoc Committee on Sovereign Debt Restructuring Processes, July 2015.

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