Standstills and an international bankruptcy court

Recent proposals have called for a sovereign debt restructuring mechanism (SDRM) to adjudicate disputes between sovereign debtors and their creditors. The goal is to develop an explicit framework for dealing with troubled loans to sovereign debtors, which up to this point the financial community has dealt with on a largely ad hoc basis. The goal is to mitigate the inefficiencies associated with default, in much the same way as domestic bankruptcy procedures are intended to mitigate the consequences of default by private entities within a given jurisdiction.2 As things stand, to the extent that creditors have any legal recourse when faced with sovereign default, they have had to work within the judicial systems of their own localities. An international bankruptcy mechanism could, in principle, mitigate four deficiencies of the status quo.