Do We Need a New Bankruptcy Regime?

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Abstract
Recently the debate on the reform of the international financial architecture has centered on the development of an appropriate mechanism or regime to ensure orderly sovereign debt restructurings. Recent cases involving sovereign bonded debt restructuring (those of Ecuador, Pakistan, Russia, and Ukraine) have been successfully completed with the use of unilateral debt exchange offers (complemented by a system of carrots and sticks, such as exit consents, to ensure successful deals). But many observers have expressed dissatisfaction with this "market-based" status quo approach. The IMF has proposed the creation of an international debt restructuring mechanism that would have many of the features of an international bankruptcy regime.1 The papers by Jeremy Bulow, Jeffrey Sachs, and Michelle White are all interesting contributions to this debate.2 All address the question of whether we need an institutional change in the international financial system that would lead to a new way of providing for orderly sovereign debt restructurings or workouts when they become necessary.

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