Sovereign Debt Forum
Sovereign Debt Forum (SDF)
Another new idea that has received attention is Brett House and Richard Gitlin’s proposal for a Sovereign Debt Forum (SDF). As a semi-formal institutional venue, the SDF would, in the words of its architects, “provide a centre for continuous improvement of the processes for dealing with financially distressed sovereigns and a venue for proactive discussions between debtors and creditors to reach early understandings on treating specific sovereign crises” (Gitlin and House 2014: 7). The SDF would be a non-statutory body modelled loosely on the London and Paris Clubs, but with wider membership. By providing “an independent standing body to research and preserve institutional memory on best practice in sovereign debt restructuring” as well as a meeting place for debtors, creditors, and other stakeholders, the SDF would help to facilitate timelier and more orderly resolutions of sovereign debt crises in a way that complements, rather than competes with, existing institutions and processes (Gitlin and House 2014: 7).
While sovereign cocos and GDP-linked bonds represent an extension and improvement of the contractual approach, the SDF breaks from the statutory-contractual dichotomy altogether. Indeed, Gitlin and House (2014: 7) argue that the world has been stuck between a rejected proposal for a statutory approach (the SDRM) and a working, but inadequate, contractual approach in the form of CACs. They argue that this impasse has resulted from a failure to accurately diagnose the main problems associated with resolving sovereign debt crises. Rather than holdout creditors or the propensity of sovereigns to default gratuitously, the core problem, as they and others see it, is that “sovereigns tend to delay restructuring their debts and, when they do pursue a debt treatment, they are often insufficiently ambitious in seeking to produce a debt burden that is sustainable” (Gitlin and House 2014: 7). The SDF is thus well positioned to handle the issue of delay, since it provides “a venue for proactive discussions between debtors and creditors to reach early understandings on treating specific sovereign crises” (Gitlin and House 2014: 7). As the authors point out, the SDF is designed to reduce the often neglected ex ante costs of sovereign debt restructuring.