Make a Reform Process Visible and Sustainable "Frameworks for Sovereign Debt Restructuring" New York Nov. 17th 2014

Make a Reform Process Visible and Sustainable"Frameworks for Sovereign Debt

Restructuring" New York Nov. 17th 2014

Three principles will are essential for a reformed DWM

• it needs to restructure debt in a single comprehensive process, with no payment obligations un-considered;

• it needs to allow for an impartial decision making about the terms of any debt restructuring, and

• this decision must be based on an impartial assessment of the debtor's situation.

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Few historical precedents

Indonesia 1968: LIC with 109 US-$ pc-income and US-$ 2.1bn external debt


How to break the stalemate: A mediator needed


Impartiality pays off• After a period of shuttle diplomacy Abs made a proposal,

which foresaw the full repayment of the capital and the full cancellation of past due and current interest - uniformly on all claims.

• With a face saving deviation of an across-the-board interest rate of 0.5%, Abs’ proposal was implemented.

• The agreement was a speedy solution to a complex problem, and it led to a sustainable debt situation in Indonesia until the Asian crisis struck in 1998.


In contrast: a sobering recent experience

• Grenada in default since April 2013• Conference of Churches suggests a creditors’ conference in

October 2013• Agreement on need of debt relief around 50% of EDT among GoG,

civil society and IMF.• Following IMF guidance Grenada instead discusses restructuring

with bondholders, faces litigation on bilateral debt to Taiwan• Still in default in November 2014


Can impartiality be institutionalized?

• Debtor needs an institution to turn to in order to trigger a comprehensive and impartially led restructuring

• A “Sovereign Debt Forum” is an option• Going beyond an SDF:

– A small standing institution– Potentially covering the full range from informal

mediation to binding arbitration


The “institution”• supports sovereign debtors with regard to debt workout procedures;• facilitates the organisation of exploratory meetings with all creditors• supports the quest for expertise/ independent assessment with

regard to debt sustainability• mediates a conciliatory solution between a sovereign and all its

creditors upon request by the sovereign• organizes a more formal and binding debt arbitration process based

on UNCITRAL principles and rules, if more informal instruments facilitation, mediation, conciliation fail.

• runs a depository of debt restructuring experiences and best practices

• emerges over time.


Earlier proposals towards institutionalization. For instance:


Permanent Court of Arbitration in the Hague

Scotland as host of debt arbitration

“…open-ended consultation process on the best possible option for a sovereign debt workout with

the involvement of all relevant stakeholders, including the private

sector, academia and civil society…”

For the sake of the UNGA-process: Beware of any….


Because there are countries under threat of new debt crisesAfghanistan Bhutan

Burkina Faso Burundi

Cameroon Cape Verde

Central African Republic Comoros

Chad DR Congo

Cote d’Ivoire Djibuti

Dominica The Gambia

Ghana Grenada

Guinea Guinea-Bissau

Guyana Haiti

Kyrgyz Republic Lao PDR

Lesotho Malawi

Mali Maldives

Marshall Islands Mauretania

Mongolia Mozambique

Nicaragua Niger

Samoa Sao Tomé & Principe

Sierra Leone Solomon Islands

St. Lucia St.Vincent and the Grenadines

Tajikistan Togo

Tonga Tuvalu

Yemen Kiribati

Documents

Make a Reform Process Visible and Sustainable "Frameworks for Sovereign Debt Restructuring" New York Nov. 17th 2014