Reforming the International Debt Architecture: For and Against
The case for a new and/or improved approach to sovereign debt restructuring rests on the assumption that the current decentralized, market-based approach is deficient. But not all observers share this assumption. Indeed, some contend that the prevailing ad hoc approach has a remarkably strong track-record of success. Hung Tran, executive managing director of the Institute of International Finance (IIF), argues that all of the ad hoc bond restructurings (of which there have been 34) since the first bond exchange of modern times (Mongolia 1997) have worked reasonably well, with the exception of Argentina in the 2000s (Tran 2014). On average, he notes, restructurings were consummated within 10 months of the announcement of a restructuring, within 7 months of starting negotiations, and with high levels of participation (95 percent). From this account, it follows logically that the success of the current approach obviates the need for any substantive reform of the international debt architecture.
Subtopics for Comment
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Issues for Discussion
1. What are the potential costs and benefits of reforming the international debt architecture? In a globalized financial system, are sovereign debt crises inevitable and bound to be costly, or are there certain types of reforms that could reduce the frequency and costliness of such crises?
2. How can we best balance the different distributional concerns that arise from sovereign debt and sovereign debt restructuring?
3. Are lenders and borrowers equally (or differentially) responsible for the buildup of unsustainable debt? What does that imply for burden-sharing in the resolution of sovereign debt crises?
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