Dealing deftly with sovereign debt difficulties

This paper looks at the international process for overcoming sovereign debt crises and highlights the complexity of determining how much debt a post-crisis country should end up with and how the major players interact in determining the actual workout in typical cases.

Key points made in the paper include:

• sovereign debt crises are international political problems
• economic crises in developing economies have been and can again become global threats
• the different ways the crises have been addressed reflect the relative importance of different groups of creditors in the defaulted debt
• the creditors drive the process, as the defaulted funds are owed to them
• the people in the crisis countries have the least influence in shaping the process and usually pay most dearly for the crises
• overall, the approach to crises has been reactive and largely ad hoc.