Debt Deals That Burned Emerging-Market Borrowers Make a Comeback

Mitu Gulati, a University of Virginia law professor, has studied a lot of sovereign debt defaults and restructurings over the years. One clear conclusion he’s come to: Countries get “screwed” when they toss in complex financial instruments as a sweetener to convince creditors to accept the deals they’re proposing.

So when Suriname unveiled an agreement this month that includes a high-fangled security pledging to hand creditors a cut of a potential oil bonanza, it got Gulati’s attention.

In theory, he says, these sweeteners “are beautiful.” Both sides should win. But in practice, government officials give away way too much, ...