Dealing Deftly with Sovereign Debt Difficulties

In all, the message in this paper is that sovereign debt crises are international political problems involving on the one hand the governments of the major economies, which represent or are themselves the creditors, and on the other hand the developing or transition economies in difficulty. The different ways the crises have been addressed reflect the relative importance of different groups of creditors in the defaulted debt. In this sense, the creditors drive the process. The people in the crisis countries have the least influence in shaping the process and usually pay most dearly for the crises. Overall, the approach has been reactive and largely ad hoc. This paper argues instead for developing a more comprehensive international approach for dealing with sovereign debt difficulties that would be more attractive to all the relevant parties.