Sovereign Debt Restructuring

Abstract

Abstract A significant fallout of the global financial crisis is expansion of liquidity facilities for economies in distress, through bilateral currency swaps, multilateral arrangements between central banks, and through IMF. Based on available data and literature, this chapter argues that the prospects for establishing orderly sovereign debt-restructuring mechanisms are very limited. Efforts at enforcing good creditor conduct and good debtor conduct for debt restructuring are bound to fail as long as creditors and debtors are located in different jurisdictions and the governing law of dominant international financial centres favours creditors. Inevitably, these pose issues of fiscal solvency or sovereign debt sustainability and sovereign debt restructuring, all of which have features very distinct from individuals and corporate entities. The conduct of fiscal policy and its constituent part, management of public debt by national authorities in future, is likely to be influenced by developments with regards to liquidity facilities available and mechanisms for debt restructuring.

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