How Defaults Are Really Resolved

Sovereign defaults are rarely settled by morality tales, and even more rarely by speed. They are resolved through legal clauses, creditor hierarchies, geopolitical bargaining, and a single gatekeeper: the IMF corridor. Markets imagine debt crises end with dramatic haircuts announced in press releases. Reality delivers multi-year negotiations across fragmented creditor groups, domestic political constraints that bind tighter than any external pressure, and restructuring agreements that frequently fail within 36 months because they addressed the debt stock without fixing the growth model. In 2026, the old playbook still runs, just with more players, more opacity, more fragmentation, and drastically less patience from anyone involved.

A sovereign default is not a discrete event captured in a single headline announcing missed payments. It is a fundamental regime change in how a state relates to money, markets, and its own citizens. The moment a government stops servicing external obligations, the entire narrative shifts from fiscal policy debates to process mechanics: who possesses legal seniority, who can credibly threaten litigation, who can impose costly delays, who can provide bridge financing, who can attach conditions without facing voters, and ultimately who absorbs losses.

For those raised on simplified narratives that debt crises are "solved" through either stern "austerity" imposed by heartless creditors or magnanimous "debt forgiveness" granted by enlightened multilaterals, the actual restructuring process looks irrational, interminable, and morally incoherent. Payments stop abruptly, yet years pass before final settlements. Domestic economic hardship intensifies throughout negotiations, yet talks repeatedly stall over technical details. Bondholders invoke moral language demanding "fair treatment" and "good faith" negotiations. Governments counter with equally moral claims about "breathing space" and "protecting citizens." Official creditors demand abstract principles like "comparability of treatment" that prove impossible to verify in practice.

The language becomes moralistic theater. The actual mechanics remain coldly legal, brutally political, and entirely predictable to those who understand the playbook.

By 2026, defaults will continue resolving the way they always have: through choreographed sequences of legal clauses, creditor committees, and credibility signals. What has fundamentally changed is the cast performing this choreography. China now stands as a central official creditor across numerous frontier market balance sheets, holding debt stocks that rival or exceed Paris Club totals in countries like Zambia, Pakistan, Kenya and Sri Lanka. Private creditor pools have become dramatically more fragmented and systematically more litigious than the bank syndicates of previous eras. Domestic debt burdens have grown too large to quarantine from external negotiations. And the IMF financing corridor, while still central, has narrowed structurally: the Fund can supply liquidity and impose conditions, but it cannot manufacture the productivity growth or export diversification that determines whether settlements prove durable.

The restructuring universe: quantifying the crisis

To understand where 2026 sits in the sovereign debt cycle, context matters. The current wave of distress is not unprecedented in scale but is distinctive in composition and creditor complexity.

The IMF estimates that 15% of low-income countries and 25% of frontier emerging markets face either actual debt distress or high risk thereof as of late 2024, representing approximately 60-70 countries with combined populations exceeding 1bn people. This compares to roughly 40-50 countries in distress during the 2000s HIPC era and perhaps 70-80 during the 1980s Latin American debt crisis. The current wave is therefore substantial but not unprecedented in absolute numbers.

What distinguishes the current crisis is creditor fragmentation. The 1980s featured concentrated bank syndicates that could coordinate relatively efficiently through steering committees. The 2000s HIPC process involved primarily Paris Club bilaterals and multilaterals. The 2020s involve simultaneous negotiations with: Chinese policy banks and state enterprises, Paris Club members, non-Paris Club bilaterals (India, Saudi Arabia, UAE), multilateral institutions, Eurobond holders, domestic bondholders, commercial banks, and increasingly commodity traders providing pre-financing against future oil or mineral exports.

The three-phase grind: how restructurings actually unfold

Despite enormous variation in country circumstances, creditor composition, and political regimes, most sovereign debt crises progress through three identifiable phases with measurable characteristics and predictable friction points.

Phase one: the liquidity break (duration: 3-12 months)

This phase begins when foreign exchange reserves fall below critical thresholds, typically 2-3 months of import cover, making continued debt service mechanically impossible without sacrificing essential imports of food, fuel or medicine. Governments respond with increasingly desperate measures: central banks deploy swap lines and borrowed reserves to defend currencies, treasuries delay payments to domestic suppliers creating shadow arrears, import compression through administrative rationing emerges, and foreign exchange allocation becomes discretionary rather than market-determined.

The phase ends with one of several catalysts: an explicit missed payment on external bonds, a formal IMF programme request acknowledging insolvency, a forced currency devaluation of 30%+ that crystalizes balance sheet stress, or announcement of "debt reprofiling" (which markets correctly interpret as default by another name). Pakistan circled this phase repeatedly during 2022-2023, coming within days of formal default before securing last-minute bilateral support. Sri Lanka crossed decisively in April 2022 when reserves fell below $1.9bn and the government announced suspension of external debt payments.

Phase two: the negotiation grind (duration: 18-48 months)

This is where uninformed observers expect rapid resolution but where restructurings actually bog down in multi-year complexity. The phase breaks into distinct sub-stages, each with its own delays:

Information warfare (6-12 months): Creditors demand comprehensive data on all obligations, state-owned enterprise liabilities, guarantees, quasi-fiscal operations, and realistic fiscal projections. Governments resist full disclosure either because data systems are genuinely deficient or because transparency would reveal worse positions than acknowledged. IMF debt sustainability analyses become battlegrounds where assumptions about GDP growth, inflation, commodity prices, exchange rates, and rollover rates determine who bears losses. Adjusting growth assumptions by 1 percentage point can shift required haircuts by 10-15 points.

Comparability deadlock (6-18 months): Official creditors refuse substantial relief unless private creditors accept comparable terms. Private creditors demand verification that official creditors, particularly China, are not preserving value through opaque collateral arrangements, escrow accounts, or strategic asset transfers. Each side suspects the other of gaming the process. Zambia's restructuring stalled for 18 months primarily over comparability verification between Chinese bilaterals and Eurobond committees.

Domestic political constraints (continuous): Throughout negotiations, governments face elections, protests over subsidy removals, public sector wage pressures, and legitimacy crises that make implementing required fiscal adjustments politically lethal. Sri Lanka experienced regime change mid-negotiation when protests forced the president to flee the country. Ghana's 2024 elections occurred during active restructuring talks, effectively freezing progress for 6-8 months. These are not peripheral disruptions; they are binding constraints that determine feasible adjustment paths regardless of economic logic.

Legal positioning (12-24 months): Private creditor committees hire restructuring advisors (Lazard, Rothschild, Houlihan Lokey), legal counsel (Cleary Gottlieb, White & Case), and communications firms. They analyze collective action clauses, explore holdout strategies, assess litigation venues, and pressure governments through public campaigns. Even when ultimate settlement seems inevitable, the positioning phase extends timelines because each party seeks marginal leverage improvements.

Phase three: the re-entry test (duration: 12-36 months post-settlement)

Restructuring agreements create legal closure but not economic recovery. The settlement reduces debt service obligations, but market access remains closed until investors develop confidence that: (1) the fiscal position is sustainable under plausible assumptions, (2) growth can resume without recreating the crisis, and (3) political stability allows policy implementation.

This phase separates durable from cosmetic restructurings. Countries that use the breathing space to fix infrastructure constraints, improve revenue mobilization, and restore competitiveness (Ecuador 2020-2023) regain market access within 18-24 months at manageable spreads of 400-600bp over US Treasuries. Countries that treat restructuring as political victory without addressing underlying weaknesses (Zambia's weak copper revenue mobilization, Ghana's subsidy regime) face extended market exclusion or return at prohibitive spreads exceeding 1,000bp that make relapse inevitable.

"Debt restructuring creates time. What governments do with that time determines whether they bought development space or merely postponed the next crisis."

The IMF corridor: financing with geometry

In virtually all modern sovereign restructurings, the International Monetary Fund does not "solve" the crisis through its own financing, which typically represents only 10-30% of total financing needs in major programmes. Instead, the IMF defines the corridor through which acceptable solutions must pass, bounded by two walls that constrain both debtors and creditors.

The liquidity wall: Without an IMF programme providing seal-of-approval and bridge financing, official bilateral partners (Paris Club, China, India, Gulf states) typically withhold support, private creditors harden positions anticipating larger haircuts, domestic currency and banking system stress accelerates, and capital flight intensifies. Even when IMF money is small relative to financing gaps—Sri Lanka's $2.9bn programme against $51bn debt stock represents only 6%—the programme unlocks multiples of its nominal value through catalyzing other flows and providing coordination focal point.

The debt sustainability wall: The IMF's Debt Sustainability Analysis becomes the reference framework determining how much debt relief is necessary for the country to reach sustainable positions defined as: public debt falling to 50-55% of GDP for low-income countries or 60-70% for middle-income within 10-15 years, gross financing needs below 12-15% of GDP, debt service consuming less than 18-25% of government revenues, and reserve cover exceeding 3-4 months of imports.

The corridor these walls create is narrow and non-negotiable. Creditors cannot demand more than the DSA indicates is sustainable without the IMF refusing to certify the deal, which triggers financing withdrawal. Governments cannot offer less without creditors blocking settlement, which prevents IMF board approval. This mutual constraint forces convergence, but only after exhausting attempts to shift burden onto other parties.

Legal architecture: CACs, aggregation, and the holdout game

The legal structure governing sovereign bonds fundamentally determines creditor coordination capacity and therefore negotiation dynamics. The quality of Collective Action Clauses embedded in bond documentation creates the difference between rapid settlements and multi-year litigation nightmares.

Enhanced CACs (post-2014 ICMA standard): Allow 75% supermajority of bondholders across all bond series to bind all holders including minorities through "single-limb" aggregation. This prevents small bondholders from blocking deals while holding out for better terms or litigation settlements. Ecuador 2020 and Argentina 2020 benefited enormously from enhanced CACs, achieving settlements within 4-6 months because holdouts lacked blocking power.

Legacy CACs (pre-2014): Require 75% majorities within each individual bond series for modifications. This creates "blocking minorities" where strategic investors acquire just over 25% of single series to veto deals and negotiate side payments or pursue litigation. Zambia's 2020-2024 restructuring suffered delays partly from needing separate negotiations with six different Eurobond series with different maturity dates and CAC structures.

No CACs (pre-2003 bonds): Require unanimous consent for modifications, effectively guaranteeing litigation by creating incentives for investors to hold out and sue for 100 cents on the dollar while others settle for 40-60 cents. Argentina's 2001 default spawned 15 years of litigation including the famous NML Capital holdout demanding $1.4bn for bonds purchased at distressed prices of 20-30 cents, ultimately collecting approximately 40% recovery through US court judgments and asset attachment threats.

The average NPV haircut across frontier and emerging market restructurings 2010-2024 runs approximately 35-40%, but with enormous variation: Ecuador delivered only 17.5% due to strong negotiating position and commodity revenue rebound, while Zambia imposed 48% reflecting deep insolvency and creditor fatigue after 42 months. Official bilateral creditors increasingly accept comparable haircuts to private bondholders, a significant shift from historical Paris Club practice of maturity extensions with minimal NPV reduction.

The China factor: opacity as negotiating position

China's emergence as largest bilateral creditor to numerous African and Asian frontier markets fundamentally altered restructuring dynamics, not primarily through lending volume but through institutional structure and disclosure practices that complicate comparability verification.

Chinese sovereign lending operates through multiple channels: China Development Bank providing infrastructure project finance, China Exim Bank offering buyer credits and export credits, state-owned commercial banks like ICBC providing syndicated loans, and state enterprises providing supplier credits or commodity prepayment facilities. Each institution operates under different mandates, reports to different ministries, faces different capital adequacy requirements, and maintains different disclosure standards.

The institutional complexity creates information asymmetries that extend negotiations. When Eurobond committees propose 40% NPV haircuts, they demand verification that Chinese lenders accept comparable terms. But Chinese lending contracts often include: collateral arrangements (revenue escrows, strategic asset pledges), non-disclosure clauses preventing term sharing, informal rollover understandings not reflected in legal documentation, and implicit linkages between debt relief and new project financing.

This is not accusation of bad faith. It reflects institutional differences: Chinese policy banks operate within state planning frameworks where debt sustainability is one consideration among many including industrial policy, diplomatic relations, and resource security. Western private creditors operate within fiduciary frameworks where maximizing recovery from specific instruments is primary mandate. These different institutional logics produce different approaches to restructuring that are difficult to make comparable even when goodwill exists.

The trend, however, is toward convergence. China participated in Zambia's Common Framework process, ultimately accepting 43% NPV reduction roughly comparable to the 48% imposed on Eurobond holders. China joined the G20 DSSI suspending payments during COVID. Chinese institutions increasingly coordinate with Paris Club rather than operating entirely separately. The friction is decreasing but remains material factor extending restructuring timelines 12-18 months in complex cases.

The domestic debt trap: when internal haircuts break banking systems

Historical sovereign restructurings largely quarantined domestic debt, treating only external foreign-currency obligations as restructurable while protecting local-currency bonds held by domestic banks. This was feasible when domestic debt represented 20-30% of total public debt. By the 2020s, domestic debt frequently exceeds 50-60% of total, making exclusion from restructuring impossible for debt sustainability.

But including domestic debt creates cascading banking crises because commercial banks holding government bonds experience simultaneous: capital adequacy violations when bond values are written down, liquidity stress when bonds become less usable as collateral, depositor panic when banks appear insolvent, and credit contraction when banks shift from lending to sovereign bond accumulation.

Ghana's experience represents the frontier of domestic debt inclusion. The government needed $10.5bn in debt relief to reach sustainability. External restructuring alone could deliver only $4.5bn. Domestic bonds represented $19bn of total $62bn public debt. Excluding domestic debt made external haircuts impossibly large at 60-70%, which Eurobond holders would litigate rather than accept. Including domestic debt spread the burden but devastated the banking system.

Sri Lanka faces identical dilemma. Domestic debt exceeds $15bn held by state banks, private banks, insurance companies, and pension funds. The IMF's debt sustainability analysis requires $12-15bn in total relief. External restructuring alone cannot deliver this without 50%+ haircuts that invite litigation. Domestic inclusion is economically necessary but socially devastating because workers' pension savings become restructuring fodder.

The cleanest solution, rarely executed, involves: government recapitalization of banks using external financing, explicit compensation to pension holders, and phased implementation allowing banks to rebuild capital over 3-5 years. But this requires fiscal space that debt-distressed countries lack by definition. The result is usually uncompensated haircuts, banking stress, and political backlash that destabilizes reform implementation.

Case studies: how defaults actually resolved

Sri Lanka 2022-present: the complexity frontier

Sri Lanka's April 2022 default on $51bn in external debt represents modern restructuring complexity at its peak: multiple official creditor groups (China $4.6bn, Japan $3.5bn, India $2.9bn, Paris Club members, multilaterals), international sovereign bonds $14.5bn across multiple series, domestic debt $15bn requiring painful inclusion, and political regime change mid-crisis when protests forced president's resignation.

The restructuring has consumed 30+ months with only tentative agreements. China-India bilateral tensions complicate official coordination. Japan's unique "special terms" for post-tsunami reconstruction lending create comparability problems. Domestic debt inclusion sparked protests from pension holders and banking sector. The IMF programme of $2.9bn is contingent on creditor agreement that remains incomplete as of late 2024.

What Sri Lanka demonstrates is how creditor complexity creates geometric expansion of negotiation time even when economic logic is clear: the country needs 30-35% debt relief, all major creditors eventually accept this range, yet achieving final agreement requires resolving information asymmetries, political constraints, and institutional coordination failures that extend timelines beyond any participant's preference.

Zambia 2020-2024: China and the Common Framework

Zambia's November 2020 default initiated the first major test of the G20 Common Framework designed to coordinate official creditors including China. The process required 42 months to achieve comprehensive agreement despite relatively straightforward economics: copper revenue volatility, excessive Chinese infrastructure debt, and Eurobond overhang totalling $13bn against GDP of only $23bn.

The delay centered on China-bondholder comparability standoff. Eurobond committees demanded transparency on Chinese terms before accepting haircuts. Chinese creditors (CDB $4.1bn, Exim Bank $1.6bn, commercial banks $0.5bn) maintained contractual confidentiality. The impasse consumed 18 months until China agreed to 43% NPV reduction in June 2023, enabling Eurobond settlement at 48% by November 2023, with official Paris Club participation completing the package by June 2024.

Zambia validates two principles: Common Framework can work but requires political will to overcome institutional frictions, and China will accept substantial haircuts when alternatives are worse (in this case, total Zambian insolvency would have destroyed both debt recovery and strategic copper access).

Lebanon 2020-present: the failure case

Lebanon's March 2020 default stands as restructuring failure exemplar. After 56+ months, no credible agreement exists. The country experiences: hyperinflation exceeding 200% annually during peak crisis, currency depreciation 5,800% (from 1,507 to 89,000 pounds per dollar), banking system insolvency with deposits frozen indefinitely, economic contraction of 40%, and complete political paralysis with government operating in caretaker capacity for extended periods.

The failure reflects compounding pathologies: domestic debt held entirely by banks that are politically protected, ruling elite captured by sectarian patronage networks preventing necessary reforms, Hezbollah's armed control over portions of territory limiting state sovereignty, and regional geopolitical constraints where no major power has sufficient interest to force settlement. The IMF offered financing contingent on governance reforms that political system cannot deliver.

Lebanon demonstrates that restructuring mechanics presume functional states. Where political systems have collapsed into sectarian deadlock, external creditors have no legitimate counterparty, domestic stakeholders block reforms, and security apparatus fragments, debt resolution becomes impossible regardless of economic necessity. The population bears the cost through currency collapse, deposit confiscation, and economic depression.

The 2026 playbook: what governs outcomes

Looking forward to restructurings unfolding during 2026, several binding constraints will determine whether resolutions prove rapid or interminable, durable or cosmetic.

Creditor fragmentation dominates timeline: Cases involving 2-3 creditor groups (Ecuador 2020: primarily Eurobonds) settle in 4-6 months. Cases involving 7-9 groups (Sri Lanka, Ghana) require 24-42 months. The relationship is not linear; coordination costs explode geometrically with number of parties requiring simultaneous agreement on comparability.

CAC architecture determines holdout risk: Enhanced single-limb CACs prevent blocking minorities and litigation threats, enabling rapid settlements. Legacy structures guarantee delays as strategic investors exploit veto leverage. Countries with substantial pre-2014 bonds face embedded restructuring friction regardless of goodwill.

Domestic politics binds tighter than economics: The IMF can calculate precise debt sustainability targets, but governments cannot implement required fiscal adjustment if it triggers regime-threatening unrest. Sri Lanka required 8% fiscal consolidation; protests overthrew the government. Ghana's subsidy removal ahead of elections is political suicide. The technically optimal restructuring is irrelevant if it's politically impossible.

Growth model determines durability: Restructurings succeed long-term only when countries use breathing space to fix productivity constraints: energy reliability, logistics costs, skills formation, and export diversification. Ecuador's oil rebound allowed durable recovery. Zambia's continued copper dependence without revenue reforms risks relapse. Markets increasingly price not just the debt deal but the growth model.

The uncomfortable truths

Several realities govern sovereign restructuring outcomes that participants acknowledge privately but rarely state publicly:

Restructuring is not a solution; it is purchased time. Debt relief creates fiscal space and market confidence but cannot manufacture productivity growth, export competitiveness, or institutional capacity. Countries that use restructuring breathing space to fix energy grids, build infrastructure, reform education, and diversify exports emerge durably (Vietnam post-late-1990s, Ecuador post-2020). Countries that treat restructuring as political victory without addressing fundamentals relapse within 3-5 years (multiple African cases in 2000s, serial Latin American restructurings).

Speed versus comprehensiveness trade-off is real. Rapid restructurings (Ecuador, Argentina 2020 completing in 4-6 months) achieved speed by excluding complex creditor groups, limiting scope to specific instruments, or accepting suboptimal sustainability outcomes. Comprehensive restructurings addressing all creditor classes and achieving deep sustainability (Zambia, ongoing Sri Lanka, Ghana) require 30-48 months. There is no fast comprehensive solution; the coordination problem is mathematically intractable beyond certain complexity thresholds.

Domestic political constraints bind tighter than external pressure. International creditors can threaten litigation, asset attachment, reputational damage, and market exclusion. But governments ultimately answer to streets, not bondholders. When subsidy removal or wage cuts trigger protests threatening regime survival, economic logic becomes irrelevant. Sri Lanka's government fell to protests. Ecuador reversed fuel subsidy removals in 2019 after violent demonstrations. Ghana delayed fiscal adjustment ahead of 2024 elections. The technically optimal restructuring means nothing if it's politically lethal.

The "serial defaulter" pattern reflects structural failures, not moral deficiency. Countries experiencing multiple defaults across decades (Argentina 9 defaults since 1827, Ecuador 10 defaults since 1826, Greece multiple times) are not uniquely irresponsible. They are demonstrating that without fixing underlying productivity constraints, export capacity, and fiscal structures, debt accumulation recurs regardless of restructuring mechanics. The pattern will repeat until growth models change fundamentally.

2026: the constraints that determine outcomes

Restructurings unfolding through 2026 will operate under three material constraints that differ from previous cycles:

Higher-for-longer interest rates eliminate growth assumption cushion. During zero-rate era (2009-2021), IMF programmes could assume 4-5% GDP growth allowing debt ratios to decline through denominator expansion even with minimal fiscal adjustment. In 3-5% global rate environment, that cushion disappears. Countries must achieve debt sustainability through actual fiscal consolidation and productivity growth, not financial engineering. This makes restructurings more painful, domestic politics more fraught, and durability more dependent on real reform.

Geopolitical fragmentation complicates creditor coordination. US-China strategic competition means creditor negotiations increasingly carry geopolitical subtext. China links debt relief to infrastructure access, technology partnerships, and diplomatic alignment. Western creditors link relief to governance reforms, transparency standards, and alignment with liberal institutional frameworks. Countries caught between cannot simply accept "best deal"; they must navigate great power competition where debt is one variable among many. This extends timelines and injects non-economic considerations into ostensibly technical negotiations.

Climate shocks create unpredictable fiscal deterioration. Restructuring plans assume fiscal consolidation paths, export revenue stability, and economic growth. Climate events (droughts destroying harvests and tourism, floods devastating infrastructure, hurricanes requiring reconstruction, sea-level rise displacing populations) create 2-4% GDP fiscal shocks that destroy programme assumptions. The 2020s will produce more climate-triggered restructurings than previous decades, and settlements will increasingly require climate adaptation financing alongside traditional debt relief.

"Defaults are resolved by leverage, not by outrage. Creditors with exit options extract better terms than captive creditors. Governments with political space implement adjustment; those without collapse. The moralizing is theater. The mechanics are brutal and predictable."

The playbook remains, the players change

Sovereign debt crises will continue resolving through the same tripartite choreography they always have: liquidity provision (primarily IMF-led), creditor coordination (increasingly complex as groups fragment), and domestic adjustment (politically constrained regardless of economic logic). The playbook outlined here, extracted from decades of restructurings across 100+ countries, will govern 2026 cases as reliably as it governed 1980s Latin America, 2000s HIPC Africa, and 2010s European periphery.

What changes in 2026 is the cast performing these mechanics: China as major bilateral creditor adding institutional complexity to coordination, private creditor fragmentation making collective action harder, domestic debt inclusion becoming unavoidable but banking-sector-breaking, and climate volatility destroying fiscal assumptions mid-negotiation. These complications extend timelines, raise coordination costs, and make comprehensive settlements harder to achieve even when economic logic is clear.

The uncomfortable reality facing both debtors and creditors in 2026 is that restructuring mechanics have reached natural limits. Legal infrastructure (CACs), institutional frameworks (Common Framework), and analytical tools (IMF DSA) are as sophisticated as they can plausibly become. Further improvements offer marginal gains only. The binding constraints are now political (domestic adjustment tolerance) and economic (productivity growth capacity), neither of which can be resolved through better legal clauses or coordination mechanisms.

Countries entering restructuring in 2026 will discover what previous defaulters learned painfully: the negotiation produces an agreement, but the agreement does not produce recovery. Recovery requires building productive capacity that generates export earnings and fiscal revenues sufficient to service reduced debt burdens while financing development. That work is difficult, slow, politically perilous, and cannot be delegated to lawyers, advisors, or the IMF.

The test facing restructuring cases unfolding through 2026, particularly Sri Lanka, Ghana, Ethiopia, and potential new defaults in Pakistan, Kenya, or Egypt if crisis conditions emerge, is not whether agreements can be reached. They can and will be, given sufficient time and political pressure. The test is whether countries use the breathing space purchased through restructuring to fix the productivity, infrastructure, and institutional failures that created debt crises in the first place.

Those that do will rejoin markets on sustainable terms and potentially achieve the development breakthroughs that eluded them during debt accumulation. Those that treat restructuring as political victory allowing return to prior policies will discover that markets remember. The second restructuring is always harder than the first because credibility, once destroyed, requires decades to rebuild.

The 2026 playbook for resolving sovereign defaults remains brutally clear: demonstrate inability to pay (liquidity crisis), negotiate who absorbs losses (creditor coordination), implement fiscal adjustment (political survival constraint), and prove growth can resume (market re-entry test). The sequence is predictable. The outcome depends entirely on what governments do with the time that restructuring purchases. For most, it will not be enough.