Sovereign Debt Restructuring and the International Legal Framework: A Critical Analysis of Existing Mechanisms and the Need for Reform

Abstract

Countries borrow, and sometimes they cannot pay back. When that happens, there is no bankruptcy court to step in, no single law to follow and no neutral referee. What exists instead is a mix of bond contracts, creditor clubs, policies of international institutions and a small number of court decisions. This article explains how that mix works, where it helps and where it fails. It looks at collective action clauses, the pari passu clause, the Paris Club, the IMF, the G20 Common Framework, national courts and investment arbitration, and it uses real cases from Argentina, Greece, Zambia, Ethiopia and others to test them. The article argues that the system is too slow, too scattered and too easy for a few creditors to disturb, and that ordinary people in debtor countries pay the price. It ends by weighing the main reform ideas and suggests a step-by-step approach that is realistic rather than perfect.