The recurring nature of efforts to facilitate the timely restructuring of sovereign debt is explained by the fact that protracted delays in restructuring private sector claims can lead to deadweight losses to distressed borrowers and their creditors. Such delays may stem from two sources: intra-creditor coordination failures; and factors that impede efficient bargaining between the debtor country and private creditors. These impediments to bargaining include asymmetric and incomplete information, as well as the inability of sovereign borrowers to credibly commit to a stream of debt service. A well-designed guarantee of restructured debt that addresses these problems in the context of debt restructuring operations designed to assure debt sustainability could promote timely restructuring and reduce the potential risks to the global economy associated with severe indebtedness.
