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. 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. Professor of law university of pennsylvania law school cigiipd conference on sovereign debt restructuring september 22, 2015 columbia university 1. I use data on 180 sovereign defaults to analyze what determines the recovery rate after a debt restructuring process. Current sovereign debt restructuring practice does not always provide timely and.
In the absence of a legal framework for sovereign debt restructurings good faith negotiations are a key part of ensuring an orderly restructuring. Sovereign debt restructuring main drivers and mechanism. I have had no experience in restructuring, so please suggest anything with a beginner in mind. Pardee professor of economics and political science, university of california, berkeley, california. Authors kirsten erichsen and andrew wilkinson sovereign debt restructuring. An incremental approach to sovereign debt restructuring cdn. Creating a framework for sovereign debt restructuring that works. 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. Recent controversies surrounding sovereign debt restructurings show the weaknesses of the. Corporate debt restructuring can be an important component of economic adjustment programs supported by the imf. 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 crises and credit to the private sector. Ansari salamah public policy and management group thesis advisory committee prof. The debt restructuring has helped to set barbados public debt on a clear downward.
For example, a troubled debt restructuring is not involved if a. The need for public law approaches matthias goldmann, senior researcher, max planck institute for. Debtors might be exposed to decisions lacking accountability and independence. Concerns surrounding some of these restructurings have led policymakers and capital market participants. 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. A more efficient mechanism for debt workouts that dealt better with information and coordination problems is needed to make this possible. 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. Some of the lessons from more successful sovereign debt restructuring initiatives are considered in crafting a debt solution for caribbean himics. Restructuring the sovereign debt restructuring mechanism. 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. Debt restructuring, by region of debtor country 302 12. Not everyone agrees, however, that debt restructuring is so difficult or that the costs are prohibitive. Barbados 201819 sovereign debt restructuringa sea change.
The funds lending framework and sovereign debtpreliminary considerations executive summary background. Binding creditors to a sovereign debt restructuring plan. 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. A soft law mechanism for sovereign debt restructuring. A mangled debt restructuring can perpetuate a sense of crisis for years, sometimes even for decades. From events so far in this unga process it is also apparent that there is a serious global governance gap.
Restructuring sovereign debt barry eichengreen barry. Recent issues and reforms tapas strickland over the past decade, 14 countries have undertaken a total of 18 debt restructurings. Research associate, national bureau of economic research, cambridge, massachusetts, and research fellow, centre for. 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. 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. Sovereign debt crisis can lead to reduced foreign credit to private domestic. The negotiating structure for sovereign debt workouts does not always respect the need for transparency and due process. Private debt restructuring may be needed to revive medium term productivity and growth, thereby supporting a countrys balance of payments adjustment. With the exception of belgium and the netherlands, debt in 2015 is considerably higher than in 1995.
Data on sovereign debt restructuring to begin, we examine data on the amount of time taken to conclude negotiations to resolve sovereign defaults. This paper studies the effect of sovereign debt restructurings with external private. Creatingaframeworkforsovereigndebtrestructuringthatworks 1. Several papers showed how desirable a debt relief was in the 80s and 90s for the ldcs. 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.
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. Sovereign debt crises involve debt restructurings characterized by a mix of facevalue haircuts and maturity extensions. Sovereign default, debt restructuring, and recovery. A study of the problems and inadequacies of the international framework. Roadmap and guide for sovereign debt workouts unctad. Institute for international economics, on file with authorobserving that.
The debate was focused on the e ects produced by the implemented restructuring. I would like to thank christina anderson, ilana eisenstein, and rob bal. The sovereign debt restructuring process international. Clements et al 2003 and reinhart et al 2012 showing that high debt can a ect negatively growth just if some thresholds are reached. Promptly upon completion of the restructuring, the debtor is required to file with the. Restructuring aims achieve the restructuring over a short time of period to reduce disruptions and reaccess capital markets. Hi everyone, i was wondering what people would recommend as the best books to understand financial restructuring. Sovereign debt, financial crises, debt restructuring, debt defaults. 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. How to restructure sovereign debt peterson institute.
Exploring ways to improve the sovereign debt restructuring process is a key part of the. 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. 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. A sovereign debt restructuring can fail in several ways. Frameworks for sovereign debt restructuring conference report joseph e. Restructuring sovereign debt barry eichengreen barry eichengreen is george c. Gdplinked securities can provide real value in future restructurings. 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. If mishandled, however, a sovereign debt workout can be incandescently painful. 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. But that would create ex ante inefficiencies that would worsen the functioning of sovereign lending markets.
Sovereign default, debt restructuring, and recovery rates. 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. Best books for financial restructuring wall street oasis. Ecuador, pakistan, russia and ukraine were all able to restructure their bonded. We develop a model of endogenous debt restructuring that captures key facts of sovereign debt and restructuring episodes. Figure 2 depicts the situation for each euro zone member state. Pdf on jan 1, 2011, kern alexander and others published sovereign debt restructuring. I owe a debt of gratitude to professor david skeel for his assistance in developing this comment. All sovereign debt workouts are painfulfor the debtor country, its citizens, its creditors, and its official sector sponsors. 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.
Schwarcz sovereign debt restructuring, supra note 9, at 960. Use the free adobe acrobat reader to view this pdf file. 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. 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. Eventually, however, the most ambitious reform proposals have been systematically abandoned, thereby consolidating debt restructurings as marketled casebycase processes. 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. 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. Approaches to corporate debt restructuring in the wake of. Assessingtheappropriatesizeofreliefinsovereigndebt. Protect the value of the assets and the rights of the creditors to avoid litigation. Sovereign debt crises, sovereign debt restructuring, debt contracts. 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.
Engagement between creditors and sovereign debtors. 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 prevalence of maturity extensions has been hard to reconcile with economic theory. Pdf sovereign debt restructurings may experience marginal changes as a result of recent.
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