Sovereign and Sub-Sovereign Debt Restructuring

Project Expert

Brad W. Setser

Steven A. Tananbaum Senior Fellow for International Economics

About the Project

Countries borrow too much, often in foreign currency, and sometimes cannot repay on time and in full.  Subdivisions of states—such as territories—also can borrow too much.  Puerto Rico is a recent case in point. The rules for determining how sovereign and sub-sovereign restructuring proceeds, and how any vote on the restructuring terms takes place, are thus of significant importance for the global economy. Recently, a major reform was introduced into the contractual provisions used in most international sovereign bonds to allow all bond holders to vote collectively on restructuring terms. The mechanics of these provisions—called aggregation clauses—are described in a recent paper co-authored with Georgetown’s Anna Gelpern.    But it will take time before these new provisions are in a large share of the outstanding stock of bonds and in the interim, the existing rules either require “bond” by “bond” voting, or do not allow voting on terms at all—potentially complicating needed restructurings. Yet in many ways the frontier of the debate on sovereign debt restructuring isn’t a classic sovereign case, but rather Puerto Rico. The legislation creating Puerto Rico’s oversight board also created two potential processes for restructuring Puerto Rico’s debts—one loosely modelled on the new clauses, and another modelled on Chapter 9 of the U.S. bankruptcy code. The lessons ultimately learned from Puerto Rico will help to shape the broader debate on the right rules for sovereign restructuring for years to come—with the initial lessons the subject of a forthcoming research paper.

Publications

Puerto Rico

Sales tax revenues have recovered. Fiscal year 2019, which started in July, should be a good year thanks to Federal disaster aid. The real question though is what happens when Federal aid starts to fall.

Turkey

Argentina

Argentina

The IMF’s reserve metric tends to overstate the reserve needs of current account surplus countries with little external debt, and understates the reserve needs of current account deficit countries with lots of external debt.

Puerto Rico

Puerto Rico

Puerto Rico’s latest fiscal plan appears to use a best case scenario as its base case. It consequently doesn’t provide a realistic benchmark for evaluating Puerto Rico’s long-run capacity to pay.

Puerto Rico

A new report from the Center for International Governance Innovation (CIGI), co-authored by Brad W. Setser and Gregory Makoff.

Puerto Rico

My new discussion paper with Greg Makoff on economic and demographic trends in Puerto Rico.

Puerto Rico

Puerto Rico

Puerto Rico

Budget, Debt, and Deficits