Sovereign debt crises have surged since the end of the Bretton Woods system and currently threaten a lost decade for many countries across the world. Indermit Gill, in the World Bank Group’s 2024 International Debt Report, describes the situation in many of the poorest countries as a ‘metastasising solvency crisis that continues to be misdiagnosed as a liquidity problem’. Despite their severe socioeconomic consequences, no comprehensive legal framework exists to address these crises—arguably the most significant gap in international economic law. This lecture, based on Dr Karina Patrício Ferreira Lima’s forthcoming book Governing Sovereign Debt Crises: The Case for International Sovereign Insolvency Law (Hart Publishing), makes the case for creating such a mechanism under international law. The book challenges prevailing narratives that attribute sovereign debt crises solely to debtor states’ mismanagement or misfortunes, instead arguing that sovereign insolvency is a systemic feature of the international monetary system. Current solutions—voluntary, ad hoc, and fragmented—fail to equitably allocate losses across an increasingly diversified sovereign creditor base, leaving many creditors worse off. At the same time, debtor states and their populations remain vulnerable to macroeconomic crises and enduring austerity, which often lead to long-term economic stagnation. The book adopts a legal political economy approach to illustrate how power asymmetries among stakeholders and the absence of enforceable rules perpetuate inefficiencies and inequities in resolving sovereign debt crises. Drawing on the legal theory of finance, insolvency law, and common resource governance theory, it illustrates how these governance failures result in a dual tragedy: a tragedy of the commons and a tragedy of the anticommons. The lecture will also examine the growing complexity of sovereign debt markets, including the diversification of creditor types, the erosion of ‘gentlemen’s agreements,’ and the limitations of initiatives like the Paris Club and the G20’s Common Framework for debt treatments. It concludes by arguing that only international sovereign insolvency rules can resolve the delays, inefficiencies, and inequities that plague sovereign debt restructuring, while exploring avenues for implementing such a proceeding and discussing the role of domestic law in a well-functioning international sovereign debt architecture. Dr Karina Patrício Ferreira Lima is a Senior Lecturer at the University of Leeds. Her research focuses on the intersection of law, finance, and sovereign debt within the broader context of global economic governance. Her research portfolio covers the legal governance of sovereign debt crises, the law and policy of international financial institutions, and the macroeconomic impact of financial law and regulation. Dr Patrício advises public entities, NGOs, and leading law firms on various aspects of financial and monetary law, including sovereign debt restructuring, financial regulation, and the governance of international financial institutions. Her work has been recognised with prestigious awards, including the 2022 Society of International Economic Law-Hart Prize and the 2022 John H. Jackson Prize, conferred by the Journal of International Economic Law. She also serves as a peer reviewer for top law and social sciences journals globally.
