Why is debt restructuring for countries also in the best interest of global creditors?
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To ensure that at some stage the debts are paid off, think of the money lending market as a series of promises that are maintained by regular payments. If one of those promises goes bad and cannot be repaid then it makes things shaky for everyone else. So it’s always better to get a smaller amount of money over a longer period of time rather than running a country into the ground and losing out on capital and interest repayments.
Some money is better than no money.
If a country is going to default on its debt, it is bad for everyone: The company will be unable to borrow again for a _long_ time or, if they can, the interest rates will be sky-high; the people who own the debt will be out their entire investment.
Restructuring, if possible, is in everyone’s best interest. Creditors will get _some_ of their investment – not all, but its better than nothing – and the country won’t have its credit rating completely destroyed.
It is better to negotiate to get a little repayment than to demand something that one could never enforce. There is not much a modern creditor can do to “force” a government to pay if the government doesn’t want to. (No longer have the British East India company)
There is also a point that just because there is a crisis today, big creditors don’t necessarily want to cut all future ties with a government. If someone forces another to starve and kick them when they’re down, it is very likely they’re never going to be welcomed back. Governments can change but the people have memories too.
An orderly process is nearly always preferable to chaos. Remember that creditors are not monolithic – if a particular creditor becomes particularly nasty, they’ll simply be excluded from negotiations. If a country owes 10 people, and one of them is the noisiest and nastiest, the other 9 creditors will just exclude that person and negotiate with the country without them. It pays to cooperate.
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