This paper examines current proposals for sovereign debt restructuring issuing from the International Monetary Fund (IMF), the United States Treasury Department, and the private sector. Part 1 surveys historical restructuring patterns in sovereign debt. Part 2 considers the Sovereign Debt Restructuring Mechanism, a proposal by the IMF to create a form of international bankruptcy court for the resolution of sovereign debt restructurings. Part 3 contemplates the collective action clauses (CACs) currently supported by the United States Treasury Department. Part 4 suggests that, in addition to an appropriate workout system, auditing, monitoring, and disclosure of a sovereign's financial health should inform both domestic and foreign creditors in their investment decisions.
The paper concludes by supporting the CACs advocated by the Treasury Department but notes that while CACs will make debt workouts more efficient, they alone will not cause significant changes in the number of bond defaults that must be worked out. Coupling the CACs with a system of independent auditing and heightened disclosure could, on the other hand, carry significant benefits for sovereign debtors, their investors, and other interested parties.