Sovereign Debt Restructuring: Re-conceiving Legal Solutions for Improving Debt Management

The recent financial crisis and subsequent sovereign debt distress in the eurozone has reinvigorated the debate over bailouts and sovereign debt restructuring. This paper analyzes the effectiveness of two approaches to debt management in addressing the practical challenges of debt workouts, particularly in relation to developing countries: a contractual approach and a sovereign bankruptcy approach. The paper uses an economic analysis of private law to analyze optimal solutions to those problems and proposes a flexible approach to debt restructuring. Drawing on theoretical research and experience from professionals in the technical aspects of the debt markets, the paper merges traditional solutions with the law and development concept of “odious debt”. It argues that potential legal elaborations of the concept of odious debt, shaped by a contractual approach, presents loan sanctions as an effective ex ante solution to contemporary problems of sovereign debt management a current climate of global sovereign debt distress.MAS