IPD AI

Towards a Comprehensive Sovereign Bankruptcy Regime

09/18/2008
Working Paper

This paper is the conclusion to the book Overcoming Developing Country Debt Crises, edited by Barry Herman, Jose Antonio Ocampo and Shari Spiegel. The argument in this book is that the ad hoc and piecemeal official and market-based insolvency regimes for sovereign debtors have been excessively creditor friendly and costly for developing countries.

The “solutions” are generally put into place with undue lags, causing unnecessary prolongation of uncertainty and attendant economic trauma. And, despite ultimately returning the debtor to new financial flows from its traditional creditors, the workouts almost never provide enough relief for a “fresh start” of the debtor economy. This often leads to future debt restructurings, and possibly a long period of stagnation or slow economic growth, with consequent worsening of poverty.