Sovereign Bankruptcy: Why Now and Why Not in the IMF

April 1, 2014

As the Eurozone sovereign debt crisis that began in 2009 continues to run its course, leaving massive economic dislocation in its wake, and as NML Capital, Ltd. v. Republic of Argentina makes its way to the U.S. Supreme Court, this Note discusses the timely and persistent problem of sovereign debt crises and the many impediments to their orderly resolution. This Note evaluates various proposals for dealing with sovereign debt-crisis resolution and concludes that a multilateral treaty-based sovereign bankruptcy regime, institutionally independent from the International Monetary Fund, offers the best solution.

The status quo—messy, inefficient, and unpredictable ad hoc negotiations—has consistently proven inadequate. Ex ante contractual devices and piecemeal statutory fixes in domestic law offer at best incremental solutions that can do little to alter the fundamental problems with the present state of affairs. Just as domestic bankruptcy law complements the law of creditor remedies due to the shortcomings of the latter, so too should a system of international bankruptcy law complement the law of creditor remedies vis-à-vis sovereign debtors. This Note argues that, although this approach may be difficult to achieve, that does not justify abandoning it.

April 2014

No. 5