Avoiding a lost decade—sovereign debt workouts in the post-Covid era.

The debt restructuring technique employed during the period between 1982 (when the global debt crisis began) and 1990 (when the first of the so-called Brady Initiative deals signalled the end of the crisis) was therefore deliberately short-term and assiduously ruled out any reduction in the size of the debt stocks. Sovereign debtors that ask for significant reductions in the size of their external liabilities in the coming decade should therefore expect debt negotiations that are longer, more contentious and leave in their wake far more holdouts than would have been the case had the countries limited their demands to simple maturity extensions and interest rate relief.[15] Political frailty All sovereign debt crises are crises. In the recent Argentine restructuring, for example, the IMF staff publicly signalled that significant further concessions by the Argentine authorities in their private sector debt negotiations would be inconsistent with the goal of debt sustainability.[18] That said, relying exclusively on the stiff vertebrae of IMF staffers to arrest undershooting in sovereign debt workouts may be incautious. Key points All sovereign debt restructurings risk undershooting (providing less debt relief than is needed to restore the country to long-term sustainability) or overshooting (extracting more debt relief from creditors than turns out to have actually been necessary). [Extracted from the article]