Lee Buchheit first defined the main approaches that aim at improving the sovereign debt restructuring process. Statutory approaches require a change in the legislation at the national or international level. Although the contractual approach is generally seen as the only competing project, Lee Buchheit also mentioned the “policy approach” and the “voluntary approach” as potential alternatives. He then described the current way of dealing with sovereign debt issues and the limitations of the contractual process. Among these limitations, he mentioned the IMF’s “too little, too late“ problem, the lack of a mechanism for providing legal seniority to post-crisis lending, the shortcomings of collective action clauses as they need time to be widespread, and the inescapable problem of “sovereign debt bulimia” – i.e. the excessive accumulation of debt followed by periodic purges through debt restructuring.

He went on to address the key features of the various proposals for a statutory approach, focusing on the 2001 IMF’s proposal to create a Sovereign Debt Restructuring Mechanism (SDRM), the first concrete step towards a multilateral legal framework. He classified the dozens of statutory approaches that have been put forward in three broad categories. First, the “full blown Chapter 11 for nations ideas” institutionalize insolvency proceedings for sovereigns. The IMF defunct project of SDRM falls into this category. Second, some reform proposals require that judicial or quasi-judicial bodies oversee the process of sovereign debt workouts or/and have the final word in approving the terms of a restructuring. Advocates of these approaches put forward the models of Chapter 9 (for municipal bankruptcies) and Chapter 11 (for corporate bankruptcies) of the U.S. Bankruptcy Code. Third, less ambitious statutory proposals aim at “defanging” holdouts by limiting creditor recoveries. Such legislative attempts to target “vulture funds” have already been passed in the United Kingdom and Belgium, and more recently in the United States and France. Amending the European Stability Mechanism to immunize the assets of sovereign debtors from attachment by creditors is another modest step in this direction.

Lee Buchheit assessed all these reforms from his practitioner’s perspective. He expressed doubts regarding the workability of entitling a judicial, quasi-judicial or arbitral body the power to make central decisions in sovereign debt issues. Should there be such a power, Lee Buchheit considers that the IMF would be the only qualified entity to exercise it. He was more supportive regarding legislative measures to tackle “vultures,” although he thinks that the holdout issue is rarely a lethal problem.