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This paper aims to use a risk management approach for re-profiling of sovereign debt. It develops profiles that trade off expected cost of financing alternative debt structures against their risk. The risk profiles are particularly informative for countries facing sovereign debt crisis, as they allow us to identify, with high probability, debt unsustainability. Risk profiles for two eurozone countries with excessive debt, Cyprus and Italy, were developed. In addition, risk profiles were developed for a proposal to impose debt sanctions in the Ukrainian crisis and it was shown that the financial impact could be substantial.

Using scenario analysis, a risk measure of the sovereign’s debt – Conditional Debt-at-Risk – was developed, and an optimization model was then used to trade off expected cost of debt financing against the Conditional Debt-at-Risk. The model is applied to three diverse settings from current crises.

The methodology traces informative risk profiles to identify sustainable debt structures. Interesting, although tentative, conclusions are drawn for the countries where the methodology was applied. Cyprus’s debt sustainability hinges on current International Monetary Fund (IMF) projections about gross domestic product growth and small deviations can push debt into unsustainable territory. For Italy, our analysis provides evidence of debt unsustainability. Common assumption of debt by eurozone member states could restore sustainability for Italy. Finally, it is shown how a proposal to impose debt sanctions against Russia for the Ukrainian crisis could have significant financial impact for Ukraine.

Additional work is needed to calibrate the simulation models for each country separately. Nevertheless, the direction of the results is such that more careful calibration will most likely not alter the conclusions but make them stronger instead.

The results provide significant insights for the management of sovereign debt for Cyprus and Italy. They also show the significant positive impact on Ukrainian public finances from debt sanctions. However, the most important practical implication is to show how the proposed methodology provided a decision support tool for restructuring and rescheduling sovereign debt for crisis countries.

There is widespread acceptance that debt restructuring has been too little and too late in recent crises failing to re-establish market access in a durable way. How to develop risk profiles for alternative debt structures has been illustrated. Debt profiles that are unsustainable can be identified, with high probability, and alternative structures proposed that restore sustainability. The methodology proposed in this paper is providing a useful tool of analysis. The topic of debt relief is currently debated widely at policy circles by the IMF and the United Nations, and the analysis of this paper provides some insightful input to the debate.

The use of scenario analysis for sovereign debt modeling and the use of an optimization model developed by the authors in previous research provide empirical analysis for three current problems in sovereign debt management. Useful insights are obtained for three important real-world cases for Cyprus, Italy and Ukraine.

The social protests on the streets of indebted sovereigns in crises across the Eurozone have made debt restructuring an imperative. Further delay in achieving this expeditiously and equitably significantly exacerbates the social costs of crises from which current and future generations will struggle to recover. This article examines the feasibility of the drastic and widespread debt restructuring needed to resolve the problem in the face of existing private law sanctions that protect individual creditor rights. It relies on an analysis of US policy in the transition to a securitized market and of key sovereign debt cases to reveal the historical contingency of private law protections. It concludes by showing that the effectiveness of private law protections have always been constrained by the overriding imperative to achieve debt sustainability with negotiated and consensual workouts. This can be achieved in the Eurozone with statutory constraints on enforcement action pending the settlement of debt workouts as suggested in a recent proposal.

The purpose of this paper is to discuss and evaluate the sovereign default restructuring options in the European Monetary Union (EMU).

The paper examines financial policy options from a politico‐economic‐legal perspective. It relies primarily on secondary data analysis.

Sovereign default restructuring an unthinkable phenomenon in the hitherto affluent EMU could now be a possibility because of the lack of political cohesion and the realities of two‐speed European Union.

The paper relies extensively on secondary data. Future research through empirical multiple case studies would enrich the insights of this paper.

Insights from the paper would be of benefit to lawmakers, financial supervisors, financial institutions and investors in general.

The paper's main value lies in its use of multiple lenses to evaluate a serious financial issue in the EMU.

With the debt crisis that has been impacting many countries in the Global South since 2015, its spectacular acceleration following the collateral effects of the COVID-19 pandemic, and the ever-increasing weight of “new” creditors (China, Gulf countries, and private creditors), the old debate for the creation of an international sovereign debt restructuring mechanism under the aegis of the United Nations has resurfaced. Although such a mechanism could constitute a real advance compared to the current situation, it remains very hypothetical, both because of its limits and because of the complexity of the process to be undertaken in view of the adoption of an international treaty endorsing its creation. Above all, it ignores the sovereignty of states and the right to self-determination of peoples. Other solutions exist, which are less complicated, less expensive, and not at all less legitimate, among which the establishment of a moratorium with interest freeze and the creation of an audit committee with citizen participation aiming at canceling or repudiating the illegitimate debts with regard to international law and national legal provisions.

This article combines two sources of data to shed light on the nature of transactional legal work. The first consists of stories about contracts that circulate among elite transactional lawyers. The stories portray lawyers as ineffective market actors who are uninterested in designing superior contracts, who follow rather than lead industry standards, and who depend on governments and other outside actors to spur innovation and correct mistakes. We juxtapose these stories against a dataset of sovereign bond contracts produced by these same lawyers. While the stories suggest that lawyers do not compete or design innovative contracts, their contracts suggest the contrary. The contracts, in fact, are consistent with a market narrative in which lawyers engage in substantial innovation despite constraints inherent in sovereign debt legal work. Why would lawyers favor stories that paint them in a negative light and deny them a potent role as market actors? We conclude with some conjectures as to why this might be so.

In October 2020, Zambia failed to make a $42.5 million interest payment on $1 billion in Eurobonds maturing in 2024, becoming the first African country to default on its debt obligations in the aftermath of COVID-19. Zambia's default highlights the fragmented nature of governance in sovereign debt markets. The Zambian default also underscores the continuing impact of colonial hangover in former colonies in Africa. Fragmented governance and colonial overhang create incentives for both debtors and creditors that contribute to cycles of sovereign debt. These cycles of debt pose a particular hazard to residents within countries that issue such debt. In African contexts, this has led to flows of funds for debt repayment that may significantly jeopardize the well-being of people who are already poor. Zambia's default also reflects the increasing need of African countries to navigate among different external actors, particularly China, which has given loans throughout Africa for varied projects, including infrastructure lending as part of its Belt and Road Initiative. The Zambian default draws attention to the significant amount of Eurobond debt African countries have incurred in recent years and the burdens that such debt may impose. The circumstances of Zambia's default, as well as recent disputes about external debt in Mozambique, reflect continuing issues about transparency and public scrutiny of sovereign debt transactions and the broader societal impact of debt internally within African countries and in relations between African countries and varied external powers.

This paper aims to investigate the idea of building responsible borrowing and lending into sovereign wealth fund (SWF) decision-making. SWFs, which currently manage US$8 trillion in assets, are influential institutional investors, but their role in sovereign debt markets needs to be further explored. In this context, this paper aims to critically assess the linkages and convergences between the Santiago Principles on SWF and the United Nations Conference on Trade and Development (UNCTAD) principles on responsible sovereign lending and borrowing.

This paper draws on legal scholarship, reports, policy papers and other open-source data to explore the role of SWFs in sovereign lending, borrowing and debt restructuring.

Building responsible borrowing and lending into SWF decision-making is feasible and justified on the grounds of both ethics and public duty. It is also justified in financial terms because it would protect SWFs from irresponsible lending and borrowing practices at the micro level while contributing to global financial stability at the macro level.

This is the first comprehensive study to juxtapose two important normative processes, the Santiago Principles and the UNCTAD Principles.

The Covid-19 pandemic has rekindled interest in sovereign debt crises amidst calls for debt relief for developing and emerging countries. But has debt relief lessened the debt burdens of emerging and developing economies? The purpose of this paper is to empirically address this question. In particular, the focus is on the implications of debt relief and institutional qualities for sovereign debt in emerging and developing economies.

The model extends the framework on the probability of default by incorporating the receipt of debt relief by a debtor country. Doing so allows to better explain movements of sovereign defaults relating to debt relief. The model is estimated via the regular probit regression.

The analysis shows that the debt relief provided, thus, far, failed to ease the debt overhang problems of developing and emerging countries and reduced investment. The current debt relief schemes may underscore the prospects of self-enforcing and self-fulfilling sovereign debt crises rather than eliminating the dilemma completely. Regarding the forms of debt relief, the analysis shows that debt forgiveness offers favourable prospects in terms of debt sustainability and economic outcomes than debt rescheduling. Perhaps, the sovereign debt crises, particularly in low-income countries, hinge on insolvency problems rather than transitory illiquidity issues.

Any debt relief mechanism should consider seriously the potential incentive effect that reinforces expectations of future debt-relief initiatives. Importantly, solving the sovereign debt problem requires a programme for sustained investment and economic growth, while not discounting the critical role of prudent debt management policies and institutions.

This study contributes a different angle to the debate on sovereign debt distress. Aside from the structural and economic factors, this study investigates the role of debt management policy in the debtor nation and the implications of debt relief benefits for sovereign risk. The framework also focuses on whether the different forms of debt relief exert distinctive impacts.

When faced with a financial crisis, debtor countries rarely choose to default on their international financial obligations. Instead, they typically choose to renegotiate their debt service obligations. According to a number of economists, the main motivating factor behind borrowers' and creditors' willingness to restructure is the benefit associated with preserving international trade ties. This raises an interesting question: is the benefit associated with maintaining international trade ties shared equally between the borrower and creditor banks? Or is the outcome dependent on a so-called ‘bargaining game’ between the borrower and creditor banks, and if so, can we identify these variables? According to our analysis, as a borrower's trade ties with developed countries strengthen, the borrower's (and/or creditor's) bargaining power diminishes (strengthens) and it thereafter agrees to restructure at less favourable terms. However, even after controlling for trade ties, we found that major borrowers were able to extract more concessions from the lenders.

This paper analyzes the role of trade credit in financial crises. Using newly collected data, we investigate the impact of negotiated agreements between debtor and creditor countries on bilateral trade. Our results indicate that exports to creditor countries rise considerably after debt restructuring agreements in the period 1980–1997, while we find no effect for imports and for the more recent period. We identify trade credit as one key channel behind this positive effect. Apparently, crisis resolution efforts, in particular agreements to extend and roll over trade credits, play a crucial role for export recoveries. This gives some support to current worldwide efforts to sustain trade financing via coordinated policy interventions.