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BPEA Article

Resolving the Debt Crisis of Low-Income Countries

Abstract

THE IDEA OF BANKRUPTCY FOR insolvent sovereign borrowers has been
around a long time, at least since Adam Smith’s favorable mention of it in
the Wealth of Nations.1 Kenneth Rogoff and Jeromin Zettelmeyer have
recently reviewed the history of the idea, as has Ann Pettifor.2 The current
international framework for workouts of distressed sovereign borrowers
is woefully inadequate, lacking both the efficiency and the equity protections
that characterize well-designed bankruptcy systems. This paper
focuses on one part of the problem, namely, the plight of the world’s most
highly indebted poor countries, and illustrates the serious problems that
have arisen because of the weakness of international institutional arrangements.
I conclude with several recommendations for reform.

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