Intercreditor and Debtor-creditor Equity Issues in Sovereign Debt Restructuring

Different types of creditors have different political and financial claims and thus different —at times, divergent or conflictive— interests. This means that the burden-sharing exercise of sovereign debt restructuring is played out not just between debtors and creditors, but also between different types of creditors. The private sector approach centered on collective action clauses (CACs) is not sufficient to solve the myriad problems, including those of inter-creditor and debtor-creditor equity, associated with sovereign debt restructuring. In response to the deficiencies of the current approach, several policy measures to enhance the equity and efficiency of sovereign debt restructuring procedures should be considered. These include: tighter regulation of sovereign credit default swap (SCDS) contracts; the provision of a greater role for debt reprofiling and bondholder aggregation; the development of common rules and norms for valuing public and private concessions in sovereign debt restructurings; and the establishment of greater creditor rights for implicit creditors.