A Framework for a Formal Sovereign Debt Restructuring Mechanism: The Kiss Principle (Keep It Simple, Stupid) and Other Guiding Principles

This paper explores the feasibility of a formal legal regime for the restructuring of sovereign state debt and outlines a framework for such a mechanism. More than a decade ago, senior officials at the International Monetary Fund (IMF) proposed the creation of a formal sovereign debt restructuring mechanism (SDRM). The proposal received support, but was eventually abandoned. One factor that contributed to its demise was the unwillingness of IMF members to submit to a tribunal that would encroach on a state’s sovereignty.

Another determinative factor was the ultimate opposition of the United States. Likely related to that opposition, and perhaps its primary source, was the strong opposition of the private sector to the IMF’s SDRM proposal.