Sovereign debt restructuringrecent developments and implications for the funds legal and policy framework executive summary there have been important developments in sovereign debt restructuring since the last executive board discussion of the subject in 2005. A debt restructuring shall not necessarily be considered a troubled debt restructuring for purposes of this issue paper even if the debtor is experiencing some financial difficulties. All sovereign debt workouts are painfulfor the debtor country, its citizens, its creditors, and its official sector sponsors. Pardee professor of economics and political science, university of california, berkeley, california. In a new report, the committee on international economic policy and reform examine sovereign debt crises and present procedures for restructuring the debt of bankrupt sovereigns at the euroarea. The need for public law approaches matthias goldmann, senior researcher, max planck institute for. Restructuring sovereign debt barry eichengreen barry. Approaches to corporate debt restructuring in the wake of. Sovereign debt restructuring main drivers and mechanism. Gdplinked securities can provide real value in future restructurings. Concerns surrounding some of these restructurings have led policymakers and capital market participants. Pdf on jan 1, 2011, kern alexander and others published sovereign debt restructuring.
Sovereign debt restructuring has been a major policy issue for the international community since the mid 1990s. Engagement between creditors and sovereign debtors. If mishandled, however, a sovereign debt workout can be incandescently painful. These initiatives are the brady plan, the enhanced hipc initiative and the joint committee on strengthening the framework for sovereign debt crisis prevention and resolution. Sovereign debt, financial crises, debt restructuring, debt defaults. Ansari salamah public policy and management group thesis advisory committee prof.
My job this morning is to try to set the legal context of sovereign debt out restructurings, and then my colleagues will describe in more detail some of the. Outline the objectives of debt restructuring the current situation the too little, too late problem the vulture funds the contractual approach response and its limitations. Sovereign debt and default ugo panizza, federico sturzenegger, and jeromin zettelmeyer this paper surveys the recent literature on sovereign debt and relates it to the evolution of the legal principles underlying the sovereign debt market and the experience of the most recent debt crises and defaults. Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations replacement of old debt by new debt when not under financial distress is called refinancing. Corporate debt restructuring can be an important component of economic adjustment programs supported by the imf. Exploring ways to improve the sovereign debt restructuring process is a key part of the. Barbados 201819 sovereign debt restructuringa sea change. Protect the value of the assets and the rights of the creditors to avoid litigation. The debate was focused on the e ects produced by the implemented restructuring. Institute for international economics, on file with authorobserving that. Use the free adobe acrobat reader to view this pdf file. Restructuring sovereign debt barry eichengreen barry eichengreen is george c.
Pdf this paper provides a comprehensive survey of pertinent issues on sovereign debt restructurings, based on a newly constructed database. A soft law mechanism for sovereign debt restructuring. I owe a debt of gratitude to professor david skeel for his assistance in developing this comment. Several papers showed how desirable a debt relief was in the 80s and 90s for the ldcs. Restructuring the sovereign debt restructuring mechanism. Binding creditors to a sovereign debt restructuring plan. The debt restructuring has helped to set barbados public debt on a clear downward. Promptly upon completion of the restructuring, the debtor is required to file with the. A restructuring that imposes a large haircut on private sector creditors need not result in a substantial reduction of the debt burden facing a country, at least when the debt burden is defined as the ratio of debt to. Hi everyone, i was wondering what people would recommend as the best books to understand financial restructuring. A study of the problems and inadequacies of the international framework. Restructuring aims achieve the restructuring over a short time of period to reduce disruptions and reaccess capital markets. I would like to thank christina anderson, ilana eisenstein, and rob bal.
Sovereign debt restructuring in practice in this section, we survey restructuring negotiations of the past two centuries with a view to isolating factors that may contribute to delay. Sovereign debt crises, sovereign debt restructuring, debt contracts. How to restructure sovereign debt peterson institute. Clements et al 2003 and reinhart et al 2012 showing that high debt can a ect negatively growth just if some thresholds are reached. Sovereign debt restructuring main drivers and mechanism 28022017 this briefing provides an overview of the main issues relating to the restructuring of sovereign debt, and outlines the factors which impact the decision as to whether or not to proceed with debt restructuring. Not everyone agrees, however, that debt restructuring is so difficult or that the costs are prohibitive. The funds lending framework and sovereign debtpreliminary considerations executive summary background. I have had no experience in restructuring, so please suggest anything with a beginner in mind. Sovereign default, debt restructuring, and recovery rates. Eventually, however, the most ambitious reform proposals have been systematically abandoned, thereby consolidating debt restructurings as marketled casebycase processes. But that would create ex ante inefficiencies that would worsen the functioning of sovereign lending markets.
The prevalence of maturity extensions has been hard to reconcile with economic theory. A sovereign debt restructuring can fail in several ways. Pdf sovereign debt restructuring after argentina researchgate. Ecuador, pakistan, russia and ukraine were all able to restructure their bonded. Current sovereign debt restructuring practice does not always provide timely and. This paper studies the effect of sovereign debt restructurings with external private. For example, a troubled debt restructuring is not involved if a. Restructuring sovereign debt barry eichengreen a t the end of 2001, in a speech to the national economists club, anne krueger, the first deputy managing director of the international monetary fund, pointed to a. Recent issues and reforms tapas strickland over the past decade, 14 countries have undertaken a total of 18 debt restructurings. Sovereign debt crisis can lead to reduced foreign credit to private domestic. Sovereign debt restructuring page 3 of 14 debt situation currently, gross government debt as a percentage of gdp is at its highest historical level figure 1.
Figure 2 depicts the situation for each euro zone member state. Some of the lessons from more successful sovereign debt restructuring initiatives are considered in crafting a debt solution for caribbean himics. Authors kirsten erichsen and andrew wilkinson sovereign debt restructuring. The economics and law of sovereign debt and default. Creatingaframeworkforsovereigndebtrestructuringthatworks 1. Schwarcz sovereign debt restructuring, supra note 9, at 960. Data on sovereign debt restructuring to begin, we examine data on the amount of time taken to conclude negotiations to resolve sovereign defaults.
The most prominent example of a statutory approach is the sovereign debt restructuring mechanism sdrm, which was proposed by the imf in 2001 but dropped from the agenda in 2003. D is the term structure of debt multiple issues r is the term structure of sovereign rates nb and gdp can be statedependent sf can be statecontingent scenario tree integrates economic and financial risk factors objective and risk neutral probabilities consiglio, carollo, zenios, quantitative finance, in print risk management for debt. A mangled debt restructuring can perpetuate a sense of crisis for years, sometimes even for decades. Pdf sovereign debt restructurings may experience marginal changes as a result of recent. This practice note, produced in partnership with rodrigo olivarescaminal, professor in banking and finance law at queen mary university of london and principal of pari passu consulting ltd, covers sources of sovereign debt financing, difficulties with sovereign debt restructuring, the aim of sovereign debt restructuring and lessons from the. I use data on 180 sovereign defaults to analyze what determines the recovery rate after a debt restructuring process. In the absence of a legal framework for sovereign debt restructurings good faith negotiations are a key part of ensuring an orderly restructuring. Sovereign default, debt restructuring, and recovery. Sovereign debt crises involve debt restructurings characterized by a mix of facevalue haircuts and maturity extensions. From events so far in this unga process it is also apparent that there is a serious global governance gap. With the exception of belgium and the netherlands, debt in 2015 is considerably higher than in 1995. Best books for financial restructuring wall street oasis. Recent controversies surrounding sovereign debt restructurings show the weaknesses of the. Sovereign debt restructuring obtain debt sustainability by reducing debt burden in an orderly manner.
As a followup to the executive boards may 20 discussion, this paper considers a possible direction for reform of the funds lending framework in the context. Private debt restructuring may be needed to revive medium term productivity and growth, thereby supporting a countrys balance of payments adjustment. Restructuring debt in the form of bonds became an issue in the late 1990s in argentina and several other nations, and the imf recently proposed a. Assessingtheappropriatesizeofreliefinsovereigndebt. Roadmap and guide for sovereign debt workouts unctad. There is a growing co nsensus that the present process for restructuring the debts of a sovereign is more prolonged, more unpredictable and more damaging to the country and its creditors than would be desirable. Debt restructuring and international public law general rules of international law as applied to holdout creditors christian tietje, public law professor, martin luther university of hallewittenberg standstill during sovereign debt restructurings. The sovereign debt restructuring process international. Issues paper skylar brooks and domenico lombardi 1 foreword this paper is part of the global consultations on sovereign debt, an initiative launched by the centre for international governance innovation cigi and coordinated by the new rules for global finance coalition. The negotiating structure for sovereign debt workouts does not always respect the need for transparency and due process. Professor of law university of pennsylvania law school cigiipd conference on sovereign debt restructuring september 22, 2015 columbia university 1.
We develop a model of endogenous debt restructuring that captures key facts of sovereign debt and restructuring episodes. Debtors might be exposed to decisions lacking accountability and independence. Creating a framework for sovereign debt restructuring that works. The past international experience with sovereign crises and debt restructuring episodes provides us with several important insights for the case of belize, which undertook two sovereign debt restructurings within a relatively shorttime span and announced in nov. Do you have questions about covid19 in relation to this course. To achieve this restructuring of the imfs role, the underlying sovereign bankruptcy framework would need to provide coherent, enforceable priority how to rethink sovereign bankruptcy 16hermanchap16 page proof page 451 20. Schwarcz the recent financial woes of greece, ireland, portugal, and other nations have reinvigorated the debate over whether to bail out defaulting countries or, instead, restructure their debt. Frameworks for sovereign debt restructuring conference report joseph e. Research associate, national bureau of economic research, cambridge, massachusetts, and research fellow, centre for. Today, the issue of sovereign debt restructuring is again on the international policy agenda and the debate is once more framed in terms of statutory versus contractual approaches. An incremental approach to sovereign debt restructuring cdn. Debt restructuring, by region of debtor country 302 12. Any framework for sovereign debt restructuring has to take account of the primacy of the functions of the state, its obligations to its citizens and the social contract the state has with its citizens.
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