5. Misaligned incentives for timely restructurings Sovereign debt restructurings generally come in the form of“too little, too late”(Guzman, Ocampo, and Stiglitz, 2016), meaning that restructurings are delayed and when they do occur, the amount of debt relief is not enough to restore debt sustainability, making crises longer lasting and costlier, increasing the risk of a future crisis. This phenomenon is explained by multiple factors, many of which go beyond this paper. One important factor is incentives: in the current environment for sovereign restructurings, both the creditors and the debtor face a structure of incentives that leads to delays in addressing unsustainable debt burdens(Orszag and Stiglitz, 2002; Diwan et al., 2024). With such a delay, they can keep the possibility of the upside in case a positive shock occurs. This incentive on the creditor side is exacerbated by the high return to sovereign debts in default before there is a judgment – an annual rate of 9 per cent under New York law, set in 1981 when the annual inflation rate in the US was close to that figure(see Blackman and Mukhi(2010), Cruces and Samples(2016), Guzman, 2020), a matter that is currently under discussion in the New York legislature. The corporate governance of the creditor institutions also creates principal-agent conflicts of interest within those institutions: those making the decisions in a restructuring process may put their own incentives before the best interest of the institutions they work for. Agency problems on the part of creditors may be especially severe when those who are partially responsible for having granted the loan are also responsible for restructuring: they don’t want to“admit” publicly what a bad decision they made just a few short years earlier. On the other hand, the government of the debtor may have an incentive to pass on the problem(at least partially) to the next government. In fact, the political economy incentives on the debtor side are a large determinant of government’s behaviour: there may even be campaign financing coming from creditors, leading to capture. Besides, creditors’ lobbying that blames debtor governments for unreasonable demands in restructuring processes and instils the fear that if the government is not willing to reach a softer deal the economy will suffer disastrous consequences may be effective at creating a public perception of pessimism, which is politically costly for governments. Furthermore, inter-creditor conflicts may result in bargaining problems, where the outcomes result in inefficient delay. DSAs are an important tool to at least smooth these problems of incentives on all sides of a debt negotiation. If they are properly conducted, they make it more difficult for those on both sides of the bargaining table to pretend the problem is smaller than it is. 6. The elements of a DSA The assessment of debt payment capacity is based on three main dimensions: 1. The definition of constraints. 2. The determination of the set of feasible policies and their endogenous feedback effects, i.e. the relationship between policies and economic performance. 3. The specification of belief distributions about the economy’s trends and shocks and the relationship between policies and those belief distributions. In the practice of DSA, there are different views regarding the definition of each of those three blocks. Those differences are to a large extent borne from competing interests in the resolution of the conflicts that emerge in Series: Debt Sustainability Assessments& Their Role in the International Financial Architecture 4