Diplomacy, debt, and change: the international debt architecture after the Covid-19 pandemic

Abstract

The article argues that the response from the Group of Twenty (G20) and the Paris Club to the covid-19 pandemic in the field of sovereign debt marks a turning point in the international debt architecture. In articulating a new approach, G20 leaders and Paris Club creditors approved the Debt Service Suspension Initiative (DSSI), which seeks to provide fiscal relief to help low-income economies (LIEs) face the pandemic crisis. Thereafter, the G20 and the Paris Club endorsed the Common Framework for Debt Treatments beyond the DSSI (CFDT), a mechanism to tackle the solvency problems of LIEs through debt restructuring processes. The CFDT is the first mechanism since the Paris Club’s creation in 1956 that brings together both its members and non-members on a permanent basis, and the first one that the G20 rather than the Group of Seven (G7) established. The CFDT’s design takes into account the changes in the sovereign debt landscape over the last 25 years, but it also seeks to maintain the Paris Club’s influence as the main forum for sovereign debt restructuring despite its declining importance.