Alternative Approaches to Sovereign Debt Restructuring‪.‬

Serious gaps exist in the means available to deal with sovereign debt crises. In recent cases of sovereign default, both the debtor country and its creditors have paid large costs, in terms of lost economic activity and income and lost value of claims. Some people see these costs as necessary to discipline debtors to avoid default. Bankruptcy should be messy, they say. In the view of many, however, the costs incurred under the current international financial architecture are unnecessarily large, to the detriment of both the debtor and its creditors. Some in the private sector also point to the fact that they have been able to conclude agreements with countries that have accumulated unsustainable debt and have defaulted. They point to Ecuador as completed, and express confidence that Argentina can be dealt with when the Argentine authorities finally approach them for serious negotiations. But this is not good enough. The losses to the Ecuadoran and Argentine economies from the processes available in those two cases have been huge and, arguably, unnecessary. Thus, doing nothing should not be considered an option. What then are the relevant alternatives for dealing with sovereign debt crises? There are essentially three: