Emory Bankruptcy Developments Journal


Odette Lienau


With expanding global vaccinations and the potential end of the COVID-19 pandemic in sight, who among us has not succumbed to daydreams of post-crisis ‘normal’ life? Still—and setting aside for now the certain obstacles on any road to public and economic health—we should not be too sanguine about the degree to which the eventual recovery will be even, including across countries. By now, the images of economic dislocation resulting from the pandemic, including empty tourist beaches, deserted town centers, and closed manufacturing plants, have become commonplace. In certain regions and countries, this dislocation and its after-effects may prove long-lasting, putting the world at risk for a post-pandemic sovereign debt crisis. In this Essay, I provide an overview of some of the key developments that have emerged in the sovereign debt space in the wake of the COVID-19 pandemic and argue that we should use the energy generated in this moment to move toward what might be called ‘disaggregated sovereign bankruptcy,’ in part by establishing institutions that could more effectively and efficiently address future crises as they arise. I first note the country financial difficulties generated by the current situation and emphasize the ways in which national responses may have long-term financial impacts that make states more vulnerable to debt distress, particularly in the developing world. I also delineate how any restructuring efforts that might result from such distress would have to contend with longstanding problems in the global architecture relevant to sovereign debt. These difficulties have hardly disappeared and may even have become more complex in recent years. I then mention several proposals that have been put forward to address the pandemic-related financial crisis, formulated by scholars and policymakers to deal with problems already present or likely to emerge. These ideas should, if fully implemented, help to address countries’ financial distress in the short-to-medium term. However, the general reaction to such proposals by private creditor groups and others has made the existing gaps in the international financial architecture even more apparent. If anything, recent crisis efforts and creditor responses suggest that—in addition to short-term, emergency-focused proposals—the need for a more rational global debt restructuring platform remains. As such, the fact of the ongoing and fast-moving public health and economic situation does not mean that we should exclusively focus on emergency-level solutions. Indeed, it remains imperative to harness the crisis energy to move in the opposite direction—toward putting in place longer-term institutions that will be ready for the next crisis and, perhaps, make that next crisis less likely or less intense. Finally, I lay out more fully that the time has come for ‘disaggregated sovereign bankruptcy’—which can be understood as a framework by which multiple processes at varying levels simultaneously support or instantiate a shared set of sovereign debt resolution principles and commitments. Although numerous actors have called for a full-blown multilateral treaty-based restructuring regime, most famously the International Monetary Fund (IMF) in the early 2000s, such proposals have thus far met with resistance. Improvements in market-based, contractually grounded solutions have taken some of the pressure off, but still leave many problems un- or under-addressed. Although the narrative of voluntary, market-based advancements versus ‘involuntary’ (or perhaps less voluntary) international statutory options offers a neatly binary conceptual package, it is well past time to abandon such overly simplistic framing. Improvements in the contractual realm, in the multilateral arena, and at the level of domestic legislation should be conceived of as complementary rather than competitive. Or, if these arenas may sometimes compete, we should understand this as the type of healthy competition that ultimately results in better outcomes; there is no need to champion one approach over another.