How to Restructure Sovereign Debt: Lessons from Four Decades

Lee Buchheit, Guillaume Chabert (French Ministry for the Economy and Finance; Paris Club), Chanda DeLong (International Monetary Fund) and Jeromin Zettelmeyer (PIIE)

Working Paper
May 2019

This paper attempts to provide a playbook for the sovereign debt restructuring process, drawing on the experience with sovereign debt restructuring since the 1980s. It begins with a discussion of the participating actors and their interests. It then describes the considerations that must be weighed in designing, negotiating, and concluding a debt restructuring, in light of two problems: asymmetric information between the debtor and the creditors, and creditor coordination problems, which can lead to free riding (the “holdout” problem). The paper focuses on how these problems, which can lead to inefficiently negotiated outcomes, can be managed and minimized in practice.