Description
The total global debt to GDP ratio has risen from roughly 110% in 1970 to 250% in 2021 and government borrowing needs remain elevated. Sovereign debt is on the rise in what can be called a fourth wave of debt. The first three waves ended with financial crises in emerging markets and developing economies and subsequent substantial output losses. In 2023, the UN warned that a total of 52 countries – almost 40% of the developing world – are in serious debt trouble, with recent defaults in Ghana and Sri Lanka. Yet, the international financial system lacks a mechanism for dealing with sovereign debt crises. There is a longstanding call for a fair collective forum for making sovereign debt restructuring just and economically efficient – our institutional framework dates to the 1940s and the theory and governance of sovereign debt have advanced little since the 1990s. Instead of contributing to the thinking of justice or efficiency per se, this article serves the purpose of lifting problem debt into a frame of global justice. The approach addresses problem debt as a question to enhance justice by removing injustice rather than offering resolutions of questions about the nature of perfect justice. It subscribes to an arrangement-focused view of justice. My argument is that arbitrating sovereign debt according to the principles of Chapter 9 of the US Bankruptcy Code fulfils the criteria of both global justice and economic efficiency. Importantly, arbitration of sovereign debt is viable in furthering these criteria only if implemented with particular qualifications.
