Abstract

The failure to enact a statutory system to restructure sovereign debt suggests that the international community is still unwilling to adopt a unified global response to insolvency issues. Since nations refused to enact uniform legislation to facilitate more orderly business insolvencies within a sovereign, it is not surprising that recent attempts to create uniform legislation that addresses the insolvency of sovereigns themselves have been unsuccessful. While a comprehensive statutory approach can predictably and efficiently restructure all of a sovereign's debts, the failed experience with uniform cross-border insolvency legislation suggests that sovereigns will not accept an inflexible statutory scheme that contains mandatory, uniform terms. Moreover, any system that requires sovereigns to cede total control of the debt restructuring process to third parties, that transfers sovereign assets or resources to lenders, or that subjects sovereigns to the jurisdiction of a nonsovereign court is not politically viable.

This Article argues that a politically viable approach to resolving sovereign debt crises is to develop a flexible statutory framework that encourages sovereigns to activate early restructurings. To give sovereigns such incentives, the IMF should condition future lending on sovereigns' willingness to enact basic mandatory debt restructuring procedures. While sovereigns should be encouraged to enact comprehensive debt restructuring legislation, they should be allowed to customize their debt restructuring procedures by negotiating a private written "protocol" with their creditors. If the sovereign and its creditors are unable to reach agreement on the protocol before the sovereign activates the mandatory debt restructuring provisions (including a brief standstill and stay on enforcement actions), the restructuring initially should be governed by paired prodebtor and procreditor default terms selected by a neutral third-party entity.

Document Type

Article

Publication Information

53 Emory Law Journal 997-1041 (2004)

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