Orderly Sovereign Debt Restructuring: Missing in Action! (And Likely To Remain So) Otaviano Canuto, Brian Pinto, and Mona Prasad* An orderlysovereign debt restructuring should place the debtor nation’s public debt on a sustainable trajectory while minimizing procrastination and contagion. However, the expe- riences with the debt crisis of the 1980s, Russia 1998, Argentina 2001, and Greece 2010 indicate that orderly debt restructurings remain elusive, even with high-powered official intervention. When solvency problems are present, the chances of success increase if official money is lent at the risk-free rate, reflecting its low risk, and if private creditors receive an upfront haircut. The paper examines the obstacles, which include moral hazard, difficulty in distinguishing between solvency and liquidity crises, and the “political economy” resistance to upfront haircuts. Orderlysovereign debt restructurings are likely to remain elusive notwithstanding recent evidence that the official mindset may be chang- ing. Sovereign Debt, Debt Restructuring, Solvency, Liquidity, Seniority, Sector Board, Economic Policy (EPOL). JEL codes: E61, E65, F34 Introduction This much we know from the experience of emerging market countries from the 1980s onwards: except for a few small cases, sovereign debt restructurings have tended to be costly and chaotic, with orderly sovereign debt restructuring seemingly impossible to achieve. This holds even when high-profile official intervention occurs. We explore why this happens and identify the impediments to an orderly debt restructuring (ODR). The finding from emerging markets (EMs) about ODRs being elusive carries over to Greece 2010. In March 2010, it became clear that Greece’s fiscal fundamentals The World Bank Research Observer # The Author 2014. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: journals.permissions@oup.com doi:10.1093/wbro/lkt020 Advance Access publication January 13, 2014 29:109–135 at International Monetary Fund on September 30, 2014 http://wbro.oxfordjournals.org/ Downloaded from