The Sovereign-Debt Crunch

At their November summit, G20 leaders adopted a new common framework for restructuring sovereign debt on a case-by-case basis. Could this be the first step toward a comprehensive global resolution mechanism, and what intermediate alternatives might be feasible?

In this Big Picture, Paola Subacchi of the University of London’s Queen Mary Global Policy Institute says the G20 initiative needs to be expanded into a common sovereign-debt restructuring scheme involving multilateral institutions. Similarly, Columbia University’s Willem H. Buiter and Anne Sibert of Birkbeck, University of London advocate the establishment of an independent Sovereign Debt Restructuring Mechanism with the aim of averting prolonged disputes over bond contracts. In the meantime, say Columbia University’s Joseph E. Stiglitz and Hamid Rashid of the United Nations Department of Economic and Social Affairs, the International Monetary Fund should buy back low- and middle-income countries’ sovereign bonds at significant discounts.

Moreover, progress toward a global resolution mechanism can advance important sustainability objectives. Former State Bank of Pakistan governor Shamshad Akhtar, Boston University’s Kevin P. Gallagher, and Ulrich Volz of SOAS, University of London propose that poorer countries receive debt relief in exchange for a commitment to align their economic policies and newfound spending capacity with climate and development goals. And MIT’s Daron Acemoglu outlines possible forms of debt restructuring and forgiveness that would cut off corrupt regimes in emerging markets and developing countries.