Sovereign debt has no bankruptcy court. Eaton and Gersovitz showed in 1981 that a sovereign repays to keep its access to future lending. Bulow and Rogoff showed in 1989 that reputation alone is not enough, and that lending survives only where creditors hold some direct sanction. Enforcement rests on exclusion or sanction, never on a judge. Whoever can organise a sanction holds the leverage. Creditors are few and face the same borrower. Borrowers are many and compete for the same capital.
The record follows the theory. In 1868, London’s bondholders formed the Corporation of Foreign Bondholders, and the Stock Exchange armed it by denying a sovereign in default new listings. Mauro and Yafeh found that it coordinated creditors and arranged many of the era’s restructurings. Official creditors added the Paris Club in 1956 and private creditors at the Institute of International Finance in 1983. The one serious borrower attempt, the Cartagena Group of 1984, had no sanction, and national interests dissolved its common position within a few years. Borrowers coordinate through the G24 and sit beside creditors at the Global Sovereign Debt Roundtable, but until this year had no institution of their own.
The gap has a price. Restructurings run case by case on creditors’ timetables; the Roundtable’s stock-take shows 16 to 24 months from programme approval to bond exchange in the completed cases. Lenders set terms based on every comparable deal, while borrowers see only their own. Collateral, margin calls and side letters surface when a restructuring finds them. On 12 October, the Borrowers’ Platform, launched in April 2026, held its first governing council in Bangkok. Its mandate excludes crisis coordination, collective restructuring and standard-setting. The question is what co-operation changes before governments reach the restructuring table.
The answer lies in the Platform’s discipline over its own members. The Roundtable’s October report shows the creditor version: private creditors who settle late may be asked for more relief if sustainability deteriorates, which rewards timely settlement. Borrowers have no equivalent. In a reputation-enforced market, a borrowers’ club can bind only through reputation: shared commitments on borrowing, benefits for keeping them and explanations for departing from them. The quiet deal, the offer a member takes alone and shows to no one, is the exit.
Why borrowers defect
In 2024, net debt inflows from bilateral creditors to International Development Association-eligible countries fell to $1.7bn, while total net inflows rose to $53.1bn, driven by short-term flows. The World Bank was the largest single provider. A finance minister with a coupon due next month cannot hold a common line against a lender offering to cover it. The member least able to pay a common position pays its price first. That is the sovereignty premium; the cost a state pays to keep its financial autonomy.
Embarrassment alone will not move that minister. Bulow and Rogoff’s warning applies to the club as much as to the market: reputation alone will not hold it. Membership must deliver something at the moment of borrowing. Two commitments, each paired with a service, would do it. A club that cannot refinance a member’s maturing debt cannot ask it to risk default for a common position. It can ask it to explain.
Terms members adopt or explain
The first commitment is a standing borrower position on contract design. The working group that drafted model climate-resilient debt clauses in 2022 included borrowing countries. It still kept the original final maturity to improve market acceptance, while acknowledging weaker protection. Presence is not leverage.
Conventions can change. In 2003, one sovereign issued New York-law bonds with collective action clauses. The first was thought to carry eight to 10 basis points, the next, weeks later, a small discount, and other large issuers followed.
Market-access members could agree on a short list of provisions, including disaster pause clauses and maturity extensions, under an explicit voluntary agreement beyond the current mandate. The Paris Club now publishes which bilateral agreements have been signed. A borrower register would show who adopted the provisions, who issued without them, and why, with an expedited route for emergencies. The service is shared with contract expertise. The discipline is explaining. Dropping a clause for a better coupon without explanation is a quiet deal, and the register says so.
Offers disclosed before they are signed
The second commitment is harder. The Roundtable’s October report lists what total return swaps should disclose – including collateral, margin calls and early termination – warns that borrowers with limited capacity may not grasp the full cost and calls transparency necessary but insufficient. It also describes layered multilateral guarantees covering up to 95% of private loans in three countries. Before signing, a borrower should know which claims a payout could create or transfer, who would hold them and how a restructuring would treat them. The lower coupon is only part of the decision.
Members should submit material or unfamiliar offers for confidential review before they bind, subject to lawful sharing, and feed completed deals into a shared record of comparables adjusted for currency, maturity, collateral and risk. The service is pooled legal and financial expertise a small debt office cannot carry alone. The decision stays national. Without review before commitment, peer learning is a seminar on deals already done.
Markets at home and abroad
Both commitments reach markets. Abroad, a provision carried by a bloc of issuers is a convention, not a signal of one issuer’s weakness, and a shared record of terms gives investors and rating agencies comparables for loans and structured financing they do not now have. Information asymmetry is priced. Narrowing it is a spread a borrower can compress without a creditor’s consent.
At home, of 86 developing countries with data, 62 saw domestic government debt rise in 2024. Borrowing in domestic currency reduces mismatch, but opaque placements, coercive terms, and concentrated exposures shift fiscal strain onto banks and pension funds, and moving paper between institutions does not increase the economy’s capacity to bear it. In the two recent domestic restructurings, domestic market access closed, treasury bills took the strain and the domestic restructuring was completed before the external one. Members that report the yield and tenor of placements with their own institutions give each other, and their investors, a benchmark that captive placement cannot hide.
Some reviews will conclude that a loan should not proceed. Some gaps need grants or deep concessionality, and a Platform worth its name should say so collectively, even when another loan is on offer.
The test
A new common framework request will test improvements in restructuring. The Platform’s test is what its other members sign while that negotiation runs. Bangkok chose a chair. The first cycle must establish what members show each other before signing, abroad and at home, and what they explain afterward. In a market with no court, that is the only sanction borrowers hold. The quiet deal would then acquire a cost.
Udaibir Das is Vice Chair of OMFIF, Member of the Bretton Woods Committee, Distinguished Fellow at the Observer Research Foundation-America, Visiting Professor at the National Council of Applied Economic Research, and Senior Adviser of the International Forum for Sovereign Wealth Funds.
Interested in this topic? Subscribe to OMFIF’s newsletter for more.