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AbstractThe book under review seems especially relevant to the intergovernmental policy dialogues that have recently focused on how creditors and a borrowing government should vet sovereign borrowing, and how to hold the lender and borrower accountable for their decisions. The book seeks to specify under what circumstances, if any, there are limits to the legal obligation to repay a sovereign loan. While repayment is always required except in cases of sovereign insolvency when it is just not possible, there have been exceptions to absolute repayment obligation in practice and in legal theory. This review builds on the author's analysis of determinants of illegitimacy (which would remove the obligation to repay) in order to examine why governments in fact repay their loans, why the loss of access to credit makes repudiation of odious loans rare, and how if enforcing the obligation to repay were restricted to "responsible" lending and borrowing under internationally agreed terms, it could advance socially and environmentally sustainable development, while maintaining normal financial market activity of sovereigns. Finally, complementing a loan-by-loan approach, this paper calls for an internationally concerted process for more effectively and fairly resolving sovereign insolvencies.

A piece of the international financial architecture is missing, one that would facilitate more effective, fair and timely sovereign debt workouts than the ad hoc, inconsistent and sometimes highly political processes that are applied today. While a newly created mechanism should be available to any sovereign government, including in Europe, special concerns have been voiced, as in the convoking of this conference, for improving debt workouts in low and middle-income countries, where crisis-related declines in living standards that are part and parcel of sovereign debt crises are hardest to bear. This paper argues that launching an initiative at this time would be opportune. The ensuing discussion first suggests that while the developing country debt situation is no longer making headlines, it is a good time to consider creating a mechanism for use when the situation becomes less benign. It then reviews the existing mechanisms for sovereign debt workouts and the limited contributions made (and feasible) from voluntary codes of good conduct, and thus why it is appropriate to think about creation of a new mechanism. It goes on to describe the characteristics that an appropriate sovereign debt workout mechanism should have. It should be a single mechanism, available to all countries, albeit with different configurations of creditors engaging in workouts for lowest-income than for other countries. The paper concludes by arguing that there are not only economic systemic and fairness reasons, but also political ones, for launching a new debt policy initiative now.

What process should be followed to help governments with foreign debts that they can no longer service move to a more sustainable situation? Multilateral institutions and governments adopted the Heavily Indebted Poor Countries (HIPC) Initiative, supplemented by the Multilateral Debt Relief Initiative (MDRI), as an approach for the poorest countries. However, they offered only the most general guidance for how the governments of countries that borrow primarily from private foreign sources should resolve a debt crisis. In essence, the international official sector says, "the parties should work it out." And they have, sometimes in an orderly and smooth way, and sometimes not. Numerous authors have proposed policy initiatives to bring more predictability and fairer outcomes into sovereign debt workouts for non-HIPCs (in some cases also aiming to improve on the HIPC process), ranging from sovereign bankruptcy regimes modeled on national corporate bankruptcy systems, to arbitration processes, to standing availability of mediation services (see Kaiser, 2008). Others have proposed informal guidelines or a "code of good conduct" to which debtors and creditors might subscribe as a way to reduce uncertainty about how debt restructuring would proceed. The latter will be the focus of this paper.

This essay characterizes the main actors and how they operate during a buildup of government foreign debt and after a default on payments. These actors are the borrowing governments, domestic and foreign commercial banks, purchasers of government bonds, other governments lending to the debtor, and multilateral institutions (the International Monetary Fund and development banks). As there is no international sovereign analog to national court-supervised bankruptcy in the case of countries, the workout from crises, mainly hitting poorer economies, occurs without legislated rules or an enforcement mechanism, although the IMF (sometimes with the World Bank) serves as an informal umpire for the global financial community.

This essay characterizes the main actors and how they operate during a buildup of government foreign debt and after a default on payments. These actors are the borrowing governments, domestic and foreign commercial banks, purchasers of government bonds, other governments lending to the debtor, and multilateral institutions (the International Monetary Fund and development banks). As there is no international sovereign analog to national court-supervised bankruptcy in the case of countries, the workout from crises, mainly hitting poorer economies, occurs without legislated rules or an enforcement mechanism, although the IMF (sometimes with the World Bank) serves as an informal umpire for the global financial community. Adapted from the source document.