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All sovereign debt restructurings are inherently messy, expensive, exasperating, time-consuming, and contentious. These are the familiar pathologies in the international system to resolve unsustainable sovereign debts. But the period since the onset of the Covid-19 crisis has revealed (to use a term we all learned during pandemic lockdowns) several new co-morbidities. These include a breakdown in the ability of the major external creditor groups (traditional Paris Club lenders, non-Paris Club bilateral creditors like China and bondholders) to coordinate their debt relief efforts, the increasingly diverse nature of the private-sector entities holding claims against a debtor state, and the total absence of any mechanisms—statutory or contractual—that can be used to ensure that the sacrifices made by the vast majority of claimants and official sector sponsors in the economic recovery process cannot be exploited by the uncooperative few. [ABSTRACT FROM AUTHOR]

The article discusses considerations in responsible sovereign borrowing and lending. It cites several reasons for the need to attain common understanding of the responsibilities of sovereign borrowers and their lenders including human cost of prodigal sovereign borrowing, the importance of the flow of capital to sovereign debtors to the world economy and the problems of sovereign finance. It mentions that the law of sovereign debt is important to the international community, since they expect sovereign states will honor their financial commitments.

The article examines ethics and law in international finance. Cross-border financing involves the flow of foreign capital into a market which can have several effects on the country including the inflation in the local stock exchange and the dispersal of political largesse. The article also discusses the problem of determining the legitimacy of international loans offered to developing countries by the World Bank and the International Monetary Fund. An examination of the role of law in contractual obligations between debtors and creditors is also offered.

The article explores the involvement of the official sector in assisting private lenders in their claims against distressed sovereign debt borrowers. It discusses the sector's objectives in resolving sovereign debt problems, the historical phases in which the sector has been involved in the recovery of private loans to foreign sovereigns, and the role of the judiciary and the International Monetary Fund (IMF) in this process.