Do We Need a New Bankruptcy Regime?

Nouriel Roubini

NR

Nouriel Roubini

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.