The Mystery of the Missing Sovereign Debt Restructuring Mechanism

The absence of a formal international regulatory mechanism tofacilitate sovereign debt restructuring has long been recognizedas a most serious gap in the architecture of global finance.Why has it proven so difficult to create such a sovereign debtrestructuring mechanism (SDRM) at the international level? Politicaleconomists have devoted relatively little scholarly attentionto this question. This paper attempts to begin to fill thisgap in the literature by examining four failed initiatives tocreate a SDRM over the past century. In place of a realist orstructural Marxist account, the paper puts forward a more contingentexplanation for these failures that highlights three distinctpolitical problems that must be overcome in the constructionof a SDRM: (1) collective action problems on both the side ofsovereign debtors and that of private foreign creditors; (2)basic distributional conflicts embodied in any debt restructuringeffort; and (3) the uncertain behavior of the private creditors'home states.