Designing Sovereign Debt Legislation: Learning from Comparative Experience

Abstract The current international regime for restructuring sovereign debt largely relies on consensual processes and contract law. This has enabled uncooperative distressed debt investors to realize high profits by insisting on full payment in situations where most creditors have already agreed to debt relief. To counter the disruptive effects of holdout creditors, Belgium, the United Kingdom, and France have enacted domestic laws limiting the enforceability of distressed sovereign debt. Recent proposals for similar legislation in New York and other jurisdictions seek to facilitate efficient and equitable sovereign debt restructurings more generally. While the policy debate is often reduced to a binary choice between ‘statutory’ and ‘market based’ approaches, a comparative analysis reveals a range of different solutions. This article surveys existing laws and proposals in the context of underlying legal concepts and policy concerns, identifying nine design choices that can inform the legislative process.