Sovereign debt restructuring

The IMF sovereign debt restructuring mechanism (SDRM) proposal failed to gain support.

Restructuring Debt Restructuring

And debt and deficit concerns will remain, with the virtual certainty of at least one sovereign debt restructuring in Europe.

A sovereign debt restructuring mechanism, collective action clauses in sovereign bond contracts and a code of conduct for private creditors and sovereign debtors have all been proposed.

Indeed, restructuring undermines the foundation of the entire financial system the safe asset role of sovereign debt.

B. Debt restructuring

After the Argentine crisis, President George W. Bush s administration vetoed proposals to create a mechanism for sovereign debt restructuring.

In 2001, IMF reformulated proposals for a debt workout mechanism based on private sector bankruptcy legislation in the form of the sovereign debt restructuring mechanism.

11 IMF, Proposals for a Sovereign Debt Restructuring Mechanism (SDRM) A Factsheet , January 2003 (http www.imf.org external np exr facts sdrm.htm).

Devaluation and debt restructuring worked.

Proposals on debt restructuring frameworks

Sovereign Debt at Square One

Sovereign debt for sustained development

O. Sovereign Debt Restructuring and Dispute Resolution, speech by Anne Krueger, First Deputy Managing Director of the International Monetary Fund, 6 June 2002.

The international community has, so far, failed to develop effective and equitable arrangements for restructuring sovereign debt, despite the clearly dysfunctional and problematic consequences of past international public debt crises.

But internal devaluation requires debt restructuring.

B. Debt restructuring 11 28 7

How to Default on Sovereign Debt

Sovereign debt no longer looks stable.

Sovereign debt restructurings with private creditors

A significant sovereign debt restructuring there would bring down European banks and potentially damage US banks as well as financial institutions around the world.

Moreover, in the international financial system no strong legal framework currently exists which would provide for the predictable and orderly restructuring of sovereign debt.

No formal debt restructuring existed for debt owed to multilateral institutions.

Absent external assistance and a credible plan for restoring fiscal order, Greek sovereign debt could not be rolled over, forcing a default, probably in the form of a restructuring of Greek debt.

The consultations also explored possible modalities of a debt workout mechanism aimed at efficient and equitable burden sharing among affected parties, such as the sovereign debt restructuring mechanism (SDRM) proposed by IMF.

European policymakers, for their part, worry that a sovereign debt restructuring will damage the financial system and be a black mark for their monetary union.

The Lethal Deferral of Greek Debt Restructuring

The mechanics of debt restructuring are straightforward.

Calls for immediate debt restructuring went unheeded.

The debt restructuring package . 11 17 6

A New Approach to Eurozone Sovereign Debt

The sovereign debt crisis is well known.

The Root of All Sovereign Debt Crises

Investors were not worried about default risk on Spanish or Irish sovereign debt, or about Italy s chronically large sovereign debt.

Securitization made debt restructuring difficult, if not impossible.

Alternatives to a debt restructuring are fast disappearing.

Need for systemic coherence in managing sovereign debt

See IMF Reviewing the process for sovereign debt restructuring within the existing legal framework, Policy Development and Review, International Capital Markets, and Legal Departments, 1 August 2003.

The sovereign debt and banking crises have become even more closely interlinked as banks bought greater amounts of their home countries sovereign debt.

The Financing for Development Office was directly coordinating multi stakeholder consultations in the areas of building an inclusive financial sector for development and the restructuring of sovereign debt.

There have been many proposals on debt restructuring mechanisms.

The debt restructuring measures had dealt primarily with commercial debt and debt servicing obligations to official bilateral creditors.

Some sovereign debtors and private creditors have been attempting to develop voluntary Principles of stable capital flows and fair debt restructuring in emerging markets , but progress has been slow.

This means no cross border sovereign debt (or esoteric instruments, such as collateralized debt obligations).