A Framework for a Formal Sovereign Debt Restructuring Mechanism: The Kiss Principle (Keep It Simple, Stupid) and Other Guiding Principles
Principle (Keep It Simple, Stupid) and Other Guiding Principles
Michigan Journal of International Law
Charles W. Mooney Jr. 0 1
Charles W. Mooney Jr., A Framework for a Formal Sovereign Debt Restructuring Mechanism: The Kiss
0 University of Pennsylvania Law School , USA
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TABLE OF CONTENTS
* Charles A. Heimbold, Jr. Professor of Law, University of Pennsylvania Law
School. I wish to thank Steven Burbank and the participants at the conference on Sovereign
Debt Restructuring sponsored by Centre for International Governance Innovation and
Columbia University’s Initiative for Policy Dialogue at Columbia University, September 22,
2015, for helpful comments on an earlier draft.
1. A Skeptical View: Unfriendly Fora . . . . . . . . . . . . . .
2. The Debtor State’s Courts . . . . . . . . . . . . . . . . . . . . . .
3. Other Approaches: The Argentina Proposal and
Variations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Convention Menu of Administrators . . . . . . . . . . . .
III. BREAKING THE LOGJAM: VIEWING A QSDRL AS A
MARKET-BASED, VOLUNTARY, AND CONTRACTUAL
APPROACH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CONCLUSION AND SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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INTRODUCTION
This paper explores the feasibility of a formal legal regime for the
restructuring of sovereign state debt and outlines a framework for such a
mechanism.1 More than a decade ago, senior officials at the International
Monetary Fund (IMF) proposed the creation of a formal sovereign debt
restructuring mechanism (SDRM).2 The proposal received support, but
was eventually abandoned.3 One factor that contributed to its demise was
the unwillingness of IMF members to submit to a tribunal that would
encroach on a state’s sovereignty.4 Another determinative factor was the
ultimate opposition of the United States.5 Likely related to that opposition,
1. As used here, “restructuring” refers to the legally binding modification of the
terms of a debtor state’s sovereign debt, such as by a reduction of principal or by an
extension of maturities (such an extension being a “reprofiling” in the vernacular of the
International Monetary Fund (IMF). See generally IMF, THE FUND’S LENDING FRAMEWORK AND
SOVEREIGN DEBT—PRE
LIMINARY CONSIDERATIONS PG (2014
), http://www.imf.org/externa
l/
np/pp/eng/2014
/052214.pdf [hereinafter IMF, LENDING FRAMEWORK].
2. See ANNE O. KRUEGER, A NEW APPROACH TO SOVEREIGN DEBT
RESTRUCTURING (2002), http://www.imf.org/external/pubs/ft/exrp/sdrm/eng/sdrm.pdf (following up on
recent speeches and articles and explaining current thinking within the IMF); FRANCOIS
GIANVITI, ET AL., A EUROPEAN MECHANISM FOR SOVEREIGN DEBT CRISES RESOLUTION: A
PROPOSAL, 15-20, (Bruegel Blueprint Series, 2010) [hereinafter GIANVITI, EUROPEAN
MECHANISM] (discussing the IMF’s SDRM proposal, various objections, and its eventual demise).
The proposal may have been inspired, at least in part, by Steven Schwarcz’s article calling for
such a framework based on corporate reorganization law. See Steven L. Schwarcz, Sovereign
Debt Restructuring: A Bankruptcy Reorganization Approach, 85 CORNELL L. REV. 956 (2000)
[hereinafter Schwarcz, Reorganization].
3.
See GIANVITI, European Mechanism, supra note 2, at 19.
4. See IMF, SOVEREIGN DEBT RESTRUCTURING—RECENT DEVELOPMENTS AND
IMPLICATIONS FOR THE FUND’S LEGAL AND POLICY FRAMEWORK 13 (2013), https://
www.imf.org/external/np/pp/eng/2013
/042613.pdf [hereinafter IMF, Recent Developments]
(stating that the SDRM proposal “received considerable support within the Board, but failed
to command the majority needed to amend the Fund’s Articles of Agreement due to the
members’ reluctance to surrender the degree of sovereignty required to establish such a
framework.”).
5. GIANVITI, EUROPEAN MECHANISM, supra note 2, at 19 (“[T]he fact that the US
effectively held veto power doomed the SDRM proposal once the US administration
formally opposed it.”) (footnote omitted).
and perhaps its primary source, was the strong opposition of the private
sector to the IMF’s SDRM proposal.6
In the wake of the SDRM proposal’s rejection, the IMF, International
Capital Market Association (ICMA), United States, European Union
(EU) and EU member states, and other organizations and states have
advocated and supported a contractual, market-b (...truncated)