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Sovereign Debt Restructuring Proposals: A Comparative Look

Published online by Cambridge University Press:  28 September 2012

Thomas I. Palley
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Extract

A range of different solutions, as the contributions to this roundtable show, has been proposed regarding the problem of sovereign borrower insolvency. Two prominent factors need to be taken into account in assessing the merits of each proposal: its impact on economic efficiency, in particular on the supply and price of credit for developing countries, and its regard for considerations of justice and procedural fairness.

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Articles
Information
Ethics & International Affairs , Volume 17 , Issue 2 , September 2003 , pp. 26 - 33
Copyright
Copyright © Carnegie Council for Ethics in International Affairs 2003

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References

1 International Monetary Fund, “The Design of the Sovereign Debt Restructuring Mechanism—Further Considerations,” November 2002, paras. 183–208, pp. 48–53; available at http://www.imf.org/external/np/pdr/sdrm/2002/112702.pdf.

2 Ibid., paras. 188, 16 pp49, 9Google Scholar.

3 The SDRM does allow for a stay of enforcement provided that 75 percent of the creditors consent.

4 The Chapter 9 approach was originally proposed by Raffer, Kunibert“Applying Chapter 9 Insolvency to International Debts: An Economically Efficient Solution with a Human Face” World Development 18, no. 2 (1990) 301–13CrossRefGoogle Scholar.

5 For a detailed discussion of the different ways of defining sustainability, and the problems related to forecasting future economic growth, see International Monetary Fund, “Debt Sustainability in Low-Income Countries: Towards a Forward-Looking Strategy,” May 2003; available at http://imf.org/external/np/pdr/sustain/2003/052303.pdf

6 Moreover, under the “hotchpot” rule, any legal takings outside the SDDRF would be deducted from the creditor's entitlement under the SDDRF settlement. The hotchpot rule says that any funds collected by an individual creditor enforcement action in another jurisdiction shall be netted out of the share due that creditor in the jurisdiction where the bankruptcy case is being heard. As such it is a disincentive to individual creditor enforcement actions, which is why the IMF argues a generalized stay of enforcement is not needed.