Towards a more robust sovereign debt restructuring architecture: innovations from Ecuador and Argentina

Resumen

Many developing and emerging countries face acute financial pressures as a result of COVID-19-related expenditures, increased re-financing costs due to market volatility and the global economic slowdown created by the pandemic. In Argentina and Ecuador, these pressures exacerbated existing macro-economic imbalances and led their governments to seek comprehensive restructurings of their public debts, including debt owed to international capital markets investors. In the absence of a sovereign bankruptcy regime, the resolution of sovereign debt crises is a matter of contract (re)negotiation between the sovereign and its creditors. For a sovereign to obtain debt relief from its private creditors, its creditors need to agree to either amend the payment terms of their existing contracts or exchange their existing obligations for new ones, in each case to reflect the sovereign’s restructuring objectives. As contract terms define the respective rights and obligations of a sovereign and its creditors and therefore set the parameters of a sovereign debt negotiation, standard contract terms in sovereign bonds have evolved over time to promote a fair and orderly restructuring process.