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The existing framework for sovereign debt workouts is often described as a
‘non-system’, a loose mix of Paris Club arrangements for official debts, voluntary
renegotiations with commercial creditors, and more ambitious but,
ultimately, temporary schemes for debt relief such as the Heavily Indebted
Poor Country (HIPC) initiative (which is now nearing its end). With sovereign
debt crises looming in a range of countries, from advanced economies
to former HIPCs, the question of how such crises should be confronted is
again growing louder. Whereas most would agree that the current framework
for sovereign debt workouts needs reform, opinions on the design of the
reform diverge widely. This short paper outlines a number of initiatives that
are currently under way or on the table and discusses their main advantages
and drawbacks.
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