Sovereign debt restructuring : a study of the problems and inadequacies of the international framework

Abstract

Distressed sovereign debt ceases to be a rarity. Sovereign debt crisis has become a contemporary international problem affecting not just the State in crisis; but also nations at large. The protracted history of sovereign debt crises and associated problems is not restricted to the developing world and includes developed countries like France and the United Kingdom which defaulted during the Great Depression of the 1930s (Dodd, 2002: 1). Specifically, the developing countries have been facing the hazard of sovereign debt crisis for a long time now as post-1950s; most debt crises occurred in developing or emerging market economies. Latin American countries hit the crisis during the 1980s; Brazil defaulted in 1980 followed by Mexico in 19821; several Latin American countries followed suit in a decade-long debt crisis. Majority of the Asian countries grappled with a financial crisis during the 1990s, followed by other countries across the globe. Starting with Thailand in 1997 the debt crisis spread to Indonesia, South Korea, Philippines, Malaysia, and Singapore. The crisis soon spread to Russia (1998). Argentina’s default during 2001 is considered the largest in history amounting to more than USD 100 billion in private debt and has brought back to the front many of the conventional problems related to sovereign debt restructuring. Since 1975, the amount of distressed external debt peaked in 1990 at an estimated more than $335 billion issued by 55 countries (Hatchondo, Martinez, & Sapriza, 2007: 169).