Dealing Deftly with Sovereign Debt Difficulties
Working Paper #61
This paper looks at the international process for overcoming sovereign debt crises in developing and transition economies. It first characterizes the nature of sovereign debt crises, and how their resolution has fallen under the domain of global policy. It then 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. It concludes by considering certain proposals for improving the chances that debt workouts will be effective, speedy and fair.
In all, the message in this paper is that sovereign debt crises are international political problems involving on the one hand the governments of the major economies, which represent or are themselves the creditors, and on the other hand the developing or transition economies in difficulty. The different ways the crises have been addressed reflect the relative importance of different groups of creditors in the defaulted debt. In this sense, the creditors drive the process. 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 has been reactive and largely ad hoc. This paper argues instead for developing a more comprehensive international approach for dealing with sovereign debt difficulties that would be more attractive to all the relevant parties.
About the Author
Visiting Senior Fellow, Graduate Program
The New School
Barry Herman (Ph.D., University of Michigan) is Visiting Senior Fellow at the Graduate Program in International Affairs of The New School in New York. He has been a member since its founding in 2010 of the Advisory Board of Social Justice in Global Development e.V., an international NGO registered in Germany that promotes reform of global development policies and improved global economic governance by preparing papers and organizing seminars and conferences for information exchange, advocacy and development education (www.socdevjustice.org). Also, from its inception in 2005 until end 2011, he was a member of the Board of Directors of Global Integrity, a research NGO based in Washington that works with independent scholars and investigative reporters on assessing laws, institutions and practices to improve governance and limit corruption in developed and developing countries. In addition, from 2004 to 2009 he co-chaired the Task Force on Debt Restructuring and Sovereign Bankruptcy at the Initiative for Policy Dialogue at Columbia University. He completed almost 30 years in the United Nations Secretariat in 2005, the last two years of which were as Senior Advisor in the Financing for Development Office in the Department of Economic and Social Affairs (DESA). He consults with various offices of the United Nations and other official bodies and non-governmental networks on international economic and financial policies (most recently, the World Council of Churches in 2012).