Time to Rethink Sovereign Bankruptcy

It begins by briefly outlining the core underlying economic and legal problems sovereigns and creditors face in a sovereign debt crisis. It continues with a review of recent proposals to facilitate or regulate sovereign debt renegotiations, in particular the proposal for a statutory approach to sovereign debt restructuring. We do not aim to assess the political feasibility of the proposed institutions for the resolution of sovereign debt crises. Instead, we focus on their likely effectiveness. In addition to defending a sovereign bankruptcy framework we have developed in recent work, we propose a major reorientation of the IMF’s role in sovereign debt crises.