Sovereign Debt Restructuring after Seville
A Closer Look at paragraph 50 of the FfD4 Outcome Document
By Daniel Reichert-Facilides
Institute for Law and Finance
The Art of Compromiso
On 16 June 2025, the four Co-Facilitator governments for the United Nations’ 4th Financing for Development Conference – Mexico, Nepal, Norway, and Zambia – published the final draft of the Outcome Document. The document, which still needs to be formally adopted, has already been dubbed the ‘Compromiso de Sevilla’. The title nicely sums up the spirit: no one should get their hopes too high, but multilateralism is here to stay.
This post takes a closer look at paragraph 50 of the Outcome Document, which deals with sovereign debt restructurings. It focuses mainly on the changes between the Zero Draft dated 17 January 2025, the First Draft dated 10 March 2025, and the Compromiso de Sevilla.
In sheer numbers, less than half of the original text has survived. Both in style and in substance, the final draft is much closer to the positions usually taken by major creditor countries. The new text also seems to reflect significant input from the IMF and the World Bank.
Many in the development community may see this as yet another manifestation of structural power imbalances. In a more benign interpretation, the struggle over the fine print shows that all actors took the FfD4 process seriously. The omissions, additions, and reshufflings thus render a much more precise picture of the current consensus and future direction of the policy debate than a heroic adoption of one of the earlier drafts would have.
Much of that picture is inevitably obscured by diplomatic language – descriptive and deliberative rather than prescriptive, shrouded in gerunds and garlands of adjectives and adverbs. This is almost elevated to perfection in the introduction: ‘To restore countries to a path of debt sustainability and continue to work toward debt restructurings being timely, orderly, effective, fair, negotiated in good faith, predictable, and coordinated, [we] …’. Yet, a few interesting details surface through the weeds in the following paragraphs.
Another farewell to the SDRM
The most obvious issue is the omission of any reference to a multilateral sovereign debt mechanism in paragraph 50f. The cover letter from the Co-Facilitators suggests that this was the only sub-paragraph on debt restructuring that changed during the last-minute negotiations. Given the central importance attributed to a UN-led debt resolution mechanism in civil society, the standoff is not surprising – but neither is the outcome: the concept of a quasi-judicial sovereign insolvency regime has existed for more than a century.[1] The most well-known initiative, the Sovereign Debt Restructuring Mechanism proposed by the IMF in 2002,[2] was soon abandoned, as was a later attempt by the UN General Assembly in 2014.[3]
Against that backdrop, reviving the idea was bound to be an uphill battle. By referencing the Pact for the Future[4] and merely mentioning a multilateral debt restructuring mechanism as one option for closing existing gaps in the debt architecture, the drafters did their best to keep a low profile. Clearly, this was not enough to address the concerns of creditor countries. Neither was the nod towards the Paris Club and the Bretton Woods institutions implied in the qualification ‘including but not limited to’.
As the history of the idea shows, the geoeconomic interests at stake in sovereign debt restructurings are deemed too significant to concede to a quasi-judicial process.[5]
Once the symbolically charged SDRM idea is out of the way, the changes to the text become more nuanced: possibly in exchange for omitting the call for a multilateral sovereign debt mechanism, the new (and somewhat misplaced) paragraph 50e acknowledges debt relief and restructuring as part of the toolset to achieve debt sustainability for developing countries ‘as appropriate’. This may state the obvious, but goes well beyond the highly guarded ‘most difficult cases’ wording for debt write-offs in the Common Framework. To avoid the new matter-of-fact approach being interpreted too liberally, an earlier sentence encouraging the proactive initiation of pre-emptive debt relief by borrower countries has been omitted from the final draft.
Bretton Woods handwriting
At a more technical level, paragraph 50a acknowledges both the central role of the Common Framework and the need for improvements. Here, the handwriting of the Bretton Woods institutions is clearly discernible: expansion to middle-income countries, standstill during negotiations, more clarity on timelines, and improved assessment and enforcement of comparability of treatment[6] - all of which made it into the final version. Differences are limited to the fine print: where the Zero Draft speaks of clear timelines, standardized standstills, and expansion to currently ineligible countries, the final document emphasizes a case-by-case approach to these measures and the indicative nature of timelines.
This seems well aligned with the recent introduction of the playbook metaphor by the Global Sovereign Debt Roundtable: the distressed debtor should be offered a better understanding of the game, not a set of more favorable rules. In other words, the playbook is meant to be (or at least to appear) descriptive rather than prescriptive.
As metaphors go, this one, too, only carries so far: In American football (as in any other game), deviating from the playbook is seen as a virtue, and even more so if it helps to score a goal. In real-world negotiations, emphasizing the factual nature of the playbook is unlikely to change the expectation that it will be adhered to: others will still cry foul, unless unusual circumstances justify the deviation. Put differently, the more the playbook achieves its goal of making the restructuring process predictable, the more prescriptive it will inadvertently become.
However, the playbook metaphor may also serve a less obvious purpose than the attempt to preserve wiggling space: in line with the understanding of the Global Sovereign Debt Roundtable as a non-binding technical forum, it both dispenses with the need for formal authorization, and can be used to limit calls for more systematic reform. At the same time, it remains open to incremental changes, even if these imply a fundamental shift. The best example is the support for parallel negotiations with official and private creditors, which was first alluded to in a 2024 progress report:[7] it is already taken as a given in the playbook, although it clearly deviates from the common practice of first seeking agreement with the Paris Club or G20 members.[8]
Against the backdrop of the playbook, silence on the parallel negotiations is the most striking gap in the Outcome Document. It is even more striking insofar as paragraph 50a explicitly calls for information sharing and early engagement between the IMF, the World Bank, and official bilateral creditors, but does not mention private creditors. Maybe it was felt that early engagement with private creditors didn’t belong in a paragraph addressing the Common Framework as an official creditor process, or that the playbook had comprehensively addressed the issue. Either way, future work on the technical aspects of parallel negotiations would have likely benefited from an endorsement in the Compromiso.
Contractual innovations
On the private creditor side, the Outcome Document unsurprisingly endorses the use of collective action clauses and majority voting in syndicated loan agreements. The approach to contractual innovations designed to incentivize (voluntary) participation of private creditors is more nuanced: claw-back clauses, loss reinstatement features, and value recovery instruments should all be ‘assessed and refined’. Particularly, the latter have recently attracted significant criticism, both because of their asymmetrical design in favor of creditors and because their complexity has resulted in disputes, e.g., in cases of Argentina, Ukraine, and Greece.[9]
Most-favored-creditor clauses, which were part of the innovations list in the zero draft, did not make it into the final version.
While the underlying idea, i.e. to compensate first movers if the debtor later agrees to more favorable restructuring terms with other creditors, has intuitive appeal, and even though MFC clauses have occasionally been used in the past,[10] it probably turned out that no one really liked them: debtors, because they limit whatever wiggling space they have left in restructuring negotiations, and because they can be triggered more easily than an outright claw-back right (which is essentially a nuclear option and thus unlikely to be exercised); private creditors, because they require an algorithmic formula to reinstate comparability of treatment, and would thereby limit ‘creative ambiguity’; and official bilateral creditors for all of the above reasons.
Holdout legislation
Against the backdrop of the highly contentious policy debate on holdout legislation in New York, the United Kingdom, and beyond,[11] it comes as a surprise that the relevant paragraph still made it into the final version. What went out was the initial call for a working group to develop a model law. Since the First Draft specifically ascribed the task of convening the working group to the Secretary-General, the omission resonates with the general reservations of the Bretton Woods institutions and their largest shareholders against UN-led debt relief. The use of the term’ model law,’ which is closely associated with the most controversial of the recent New York bills, may have rung additional alarm bells. Given the length of a typical model law process, even supporters of the general idea might have considered the initiative an impediment rather than an impulse. Yet, as the twists and turns of the legislative saga in New York have shown, the policy debate would certainly benefit from a more technical and systematic approach.
What remains of paragraph 50b suggests that the debate is now headed in the right direction, even without the conceptual framework of a model law process: the exclusive focus of the First Draft on major financial jurisdictions for sovereign bond issuances has been abandoned.
This makes perfect sense because collective action clauses have mostly resolved holdout issues for this part of the creditor universe. The generic reference to ‘jurisdictions’ also reflects the insight that the practical relevance of holdout legislation mostly hinges on the place of enforcement rather than on governing contract law, which are separate (albeit often confounded) concepts.
Ever more subtly, the change from ‘holdout creditors’ to ‘holdouts by creditors’ suggests a shift of legislative purpose from the vulture fund narrative to a more result-oriented approach. If this reading is correct, the New York Champerty Bill, which recently passed the State Senate and is now pending in the Assembly, may soon become subject to friendly fire for exclusively targeting distressed debt investors on the basis of past litigation activity. On the other side of the Atlantic, the UK Debt Relief (Developing Countries) Bill, introduced in 2024, merely limits enforcement action in excess of comparable treatment terms and is, thus, conceptually aligned with the new wording (or vice versa).
Borrower-driven formats
The emphasis on existing institutions and formats continues throughout the remainder of the section: the African Legal Support Facility is given prominent credit for capacity building while avoiding the impression of exclusive endorsement that could have been read into the initial text.
In the same vein, the final paragraph acknowledges the convening power of the United Nations Secretary-General but closes with a laundry list of established players: ‘… the Paris Club, and other official creditors and debtors, along with the IMF and World Bank, other multilateral development banks, private creditors and other relevant actors’.
Takeaways from Seville
The conference is only about to start, but the key message on debt restructurings from the Outcome Documents already seems clear: multilateralism is alive, compromise is tedious, and what matters are the details.
[1] For an early overview see Diena, I’ll Fallimento Degli Stati E Il Diritto Internazionale (1898)
[2] Krueger, A New Approach to Sovereign Debt Restructuring (2002)
[3] A/RES/68/304 — “Towards the establishment of a multilateral legal framework for sovereign debt restructuring processes”
[4] A/RES/79/1 – “Pact for the Future”, notably Action 50
[5] Brooks, The Politics of Regulatory Design in the Sovereign Debt Restructuring Regime, Global Governance 25 (2019) 393
[6] Georgieva & Pazarbasioglu, The G20 Common Framework for Debt Treatments must be Stepped Up, IMFBlog 2 December 2021
[7] Global Sovereign debt Roundtable - 2nd Co-Chairs Progress Report, April 17, 2024 at p. 7.
[8] Hagan & Setser, Restructuring Sovereign Debt – The Need for a Coordinated Framework, PIIE Policy Brief 24-4, May 2024
[9] Panizza, The Pitfalls of Value Recovery Instruments in Sovereign Debt Restructuring – Theory and Practice, FDL Policy Note 17, September 2024
[10] Buchheit & Gulati, Enforcing Comparability of Treatment in Sovereign Debt Restructurings (2022), Virginia Law and Economics Research Paper No. 2022-23
[11] Markoff, Advice for New York State and International Policymakers Regarding Sovereign Debt Reforms at the State Level, M-RCBG Associate Working Paper Series No. 245, September 2024