How to Tackle the Challenge of Sovereign Debt

In a special editorial for the Globe and Mail, James Haley writes that the G20 must address the problem of sovereign debt. He explores three key issues that emerged from the recent conference titled “Sovereign Debtors in Distress: Are Our Institutions Up to the Challenge?” that INET co-hosted with its partner organization the Centre for International Governance Innovation (CIGI) at Waterloo, Ontario in Canada (a video of the talk given by Paul Martin here). The first issue was the need for debt restructuring given that public debt in many countries is too high. The second was the need for an improved design for the process of restructuring sovereign debt that would prevent free-riding on the part of creditors acting opportunistically to extract higher payouts. And the third was that this framework must align with the incentives of borrowers, an issue in which international organizations such as the IMF might play a key role. More…