Sovereign Debt Restructuring—Recent Developments And .
April 26, 2013SOVEREIGN DEBT RESTRUCTURING—RECENTDEVELOPMENTS AND IMPLICATIONS FOR THE FUND’SLEGAL AND POLICY FRAMEWORKEXECUTIVE SUMMARYThere have been important developments in sovereign debt restructuring sincethe last Executive Board discussion of the subject in 2005. Since the last Boardreview, Greece launched the largest sovereign debt restructuring in history in February2012. Other recent restructurings include Belize (2007, 2013), Jamaica (2010, 2013),St. Kitts and Nevis (2012), and Grenada which has announced the intention torestructure its public debt. Separately, ongoing litigation against Argentina could havepervasive implications for future sovereign debt restructurings by increasing leverage ofholdout creditors. There has also been active discussion of debt restructuring issues ininternational fora and the Institute for International Finance has recently issued anannex to its Principles in light of the restructuring experience in Greece.Against this backdrop, this paper reviews the recent application of the Fund’spolicies and practices on sovereign debt restructuring. Specifically, the paper: recaps in a holistic manner the various policies and practices that underpin theFund's legal and policy framework for sovereign debt restructuring, including ondebt sustainability, market access, financing assurances, arrears, private sectorinvolvement (PSI), official sector involvement (OSI), and the use of legal instruments; reviews how this framework has been applied in the context of Fund-supportedprograms and highlights the issues that have emerged in light of recent experiencewith debt restructuring; and describes recent initiatives in various fora aimed at promoting orderly sovereigndebt restructuring, highlighting differences with the Fund’s existing framework.Based on this stocktaking, the paper identifies issues that could be considered infurther depth in follow-up work by staff to assess whether the Fund’s frameworkfor debt restructuring should be adapted: first, debt restructurings have often been too little and too late, thus failing to reestablish debt sustainability and market access in a durable way. Overcoming these
SOVEREIGN DEBT RESTRUCTURINGproblems likely requires action on several fronts, including (i) increased rigor andtransparency of debt sustainability and market access assessments, (ii) exploringways to prevent the use of Fund resources to simply bail out private creditors, and(iii) measures to alleviate the costs associated with restructurings;2 second, while creditor participation has been adequate in recent restructurings, thecurrent contractual, market-based approach to debt restructuring is becoming lesspotent in overcoming collective action problems, especially in pre-default cases. Inresponse, consideration could be given to making the contractual framework moreeffective, including through the introduction of more robust aggregation clausesinto international sovereign bonds bearing in mind the inter-creditor equity issuesthat such an approach may raise. The Fund may also consider ways to condition useof its financing more tightly to the resolution of collective action problems; third, the growing role and changing composition of official lending call for aclearer framework for official sector involvement, especially with regard to non-ParisClub creditors, for which the modality for securing program financing commitmentscould be tightened; and fourth, although the collaborative, good-faith approach to resolving external privatearrears embedded in the lending into arrears (LIA) policy remains the mostpromising way to regain market access post-default, a review of the effectiveness ofthe LIA policy is in order in light of recent experience and the increased complexityof the creditor base. Consideration could also be given to extending the LIA policyto official arrears.INTERNATIONAL MONETARY FUND
SOVEREIGN DEBT RESTRUCTURINGApproved BySean Hagan,Siddharth Tiwari, andJosé ViñalsThis paper was prepared by an inter-departmental team from LEG,MCM, and SPR. Varapat Chensavasdijai (SPR) managed the overallproject. The team comprised Yan Liu (LEG lead), Wolfgang Bergthaler,Andrew Giddings, and Amanda Kosonen; and Michael Papaioannou(MCM lead), David Grigorian, Anastasia Guscina, Gabriel Presciuttini,and Takahiro Tsuda; and Reza Baqir (SPR lead), Tamon Asonuma,Lorenzo Giorgianni, Sarwat Jahan, Sergi Lanau, Yanliang Miao,Ilona Mostipan, Keiichi Nakatani, Roberto Perrelli, Brett Rayner,Francisco Roch, and Yan Sun-Wang. The paper was prepared underthe supervision of Sean Hagan (LEG), Hugh Bredenkamp (SPR), andRobert Sheehy (MCM).CONTENTSABBREVIATIONS AND ACRONYMS 5I. INTRODUCTION 6II. THE FUND’S LEGAL AND POLICY FRAMEWORK FOR SOVEREIGNDEBT RESTRUCTURING 7A. Overview of the Framework 7B. Debt Sustainability and Market Access 9C. Debt Restructuring Process 10III. PRELIMINARY REVIEW OF POLICIES IN LIGHT OF RECENT DEBTRESTRUCTURING CASES 15A. Restructurings That Are Too Little and Too Late 15B. Overcoming the Collective Action Problem 27C. Clarifying the Framework for Official Sector Involvement 33D. Broader Stocktaking of the LIA Policy 35IV. RECENT PROPOSALS FOR ORDERLY DEBT RESTRUCTURINGS 37V. ISSUES FOR DISCUSSION 41REFERENCES 42ANNEX I. FUND POLICIES ON FINANCING ASSURANCES AND EXTERNAL ARREARS 43INTERNATIONAL MONETARY FUND3
SOVEREIGN DEBT RESTRUCTURINGBOXES1. Key Features of Collective Action Clauses and the Sovereign Debt Restructuring Mechanism 142. CDS Contracts in the Greece Debt Restructuring 323. Financing Assurances in Previous OSI Cases 34FIGURE1. Public Debt-to-GDP and Timeline of Debt Restructuring 17TABLES1. Key Features of Recent Debt Restructuring Cases 222. Post-Restructuring Outcomes 254INTERNATIONAL MONETARY FUND
SOVEREIGN DEBT RESTRUCTURINGABBREVIATIONS AND ACRONYMSCACsCollective Action ClausesCDSCredit Default SwapsDSADebt Sustainability AnalysisECCUEastern Caribbean Currency UnionECFExtended Credit FacilityECRMEuropean Crisis Resolution MechanismEFFExtended Fund FacilityEPCAEmergency Post Conflict AssistanceESMEuropean Stability MechanismFRANFixed Rate Accreting NotesFTAPFair and Transparent Arbitration ProcessGCABGlobal Committee of Argentina BondholdersGDPGross Domestic ProductGGBGreek Government BondsHIPCHeavily Indebted Poor CountriesIDRCInternational Debt Restructuring CourtIIFInstitute of International FinanceISDAInternational Swaps and Derivatives AssociationLEGLegal DepartmentLIALending into ArrearsMCMMonetary and Capital Markets DepartmentNPVNet Present ValueOSIOfficial Sector Involvement“Principles”Principles for Stable Capital Flows and Fair Debt RestructuringPSIPrivate Sector InvolvementSBAStand-By ArrangementSDFSovereign Debt ForumSDRMSovereign Debt Restructuring MechanismSDTSovereign Debt TribunalSPRStrategy, Policy, and Review DepartmentUNUnited NationsWAEMUWest African Economic and Monetary UnionINTERNATIONAL MONETARY FUND5
SOVEREIGN DEBT RESTRUCTURINGI. INTRODUCTION1.The Executive Board last reviewed the experience with sovereign debt restructuring in2005. In the report for that Board discussion staff provided an update of developments in a numberof sovereign debt restructuring cases, described progress in the inclusion of collective action clauses(CACs) in sovereign bond issuances, reviewed the Principles for Stable Capital Flows and Fair DebtRestructuring ("Principles") by the Institute of International Finance (IIF), discussed Paris Club relatedissues, including progress under the Club’s Evian Approach, and examined the determinants andprospects for regaining market access by countries emerging from debt crises.12.There have been important developments in sovereign debt restructuring since thelast Board review. In February 2012, Greece launched the largest sovereign debt restructuring inhistory covering EUR 205 billion in debt. Other sovereign debt restructurings have also recentlytaken place, including Belize (2007, 2013), Jamaica (2010, 2013), and St. Kitts and Nevis (2012), andGrenada has announced the intention to restructure its public debt. Separately, ongoing litigationagainst Argentina could have wide implications for future sovereign debt restructurings. There hasalso been active discussion of debt restructuring issues in international fora and the IIF has recentlyissued an annex to its Principles in light of the restructuring experience in Greece.3.Against this backdrop, and given the current outlook for debt, this paper reviews therecent application of the Fund’s policies and practices on sovereign debt restructuring. Itbegins by recapping in a holistic manner the various policies and practices that underpin the Fund'slegal and policy framework for sovereign debt restructuring, including on debt sustainability,financing assurances, market access, arrears, private sector involvement (PSI), official sectorinvolvement (OSI), and the use of legal instruments (Section II). The paper next reviews how thisframework has been applied in practice and highlights issues that have emerged in light of recentexperience with debt restructuring (Section III).2 The paper does not provide reform proposals, butnotes areas where further work would be needed to inform any change to the existing framework.Section IV describes recent initiatives aimed at promoting orderly sovereign debt restructuring,highlighting differences with the Fund’s existing framework for debt restructuring. Section Vsummarizes issues for Directors’ consideration.1See Progress Report on Crisis Resolution, which was the last of a series of such reports prepared regularly to brief theBoard on developments with respect to resolving debt crises. In 2006 staff prepared an analytical paper for theBoard’s information—Cross-Country Experience with Restructuring of Sovereign Debt and Restoring Debt Sustainability,—that examined the initial conditions that gave rise to debt restructurings, discussed the impact of suchrestructurings in each of these cases, and provided an assessment of whether sustainability had been restored.2The restructurings covered include Argentina (2005, 2010), Dominican Republic (2005), Grenada (2005), Ecuador(2009), Belize (2007, 2013), Seychelles (2009), Jamaica (2010, 2013), Greece (2012), and St. Kitts and Nevis (2012). Thereview of country cases builds on A Survey of Experiences with Emerging Market Sovereign Debt Restructurings, andThe Eastern Caribbean Economic and Currency Union—Macroeconomics and Financial Systems (2013).6INTERNATIONAL MONETARY FUND
SOVEREIGN DEBT RESTRUCTURING4.This paper concludes that recent developments call for revisiting certain aspects of theFund’s sovereign debt restructuring framework. In particular, the paper identifies four issues thatmay merit further in-depth follow-up staff analysis: (i) debt restructurings have often been too littleand too late, thus failing to re-establish debt sustainability and market access in a durable way;(ii) while creditor participation has been adequate in recent restructurings, the current contractual,market-based approach to debt restructuring is becoming less potent in overcoming collectiveaction problems, especially in pre-default cases; (iii) the growing role and changing composition ofofficial lending call for a clearer framework for official sector involvement; and (iv) although thecollaborative, good-faith approach to resolving external private arrears embedded in the lendinginto arrears (LIA) policy remains the most promising way to regain market access post-default, areview of the effectiveness of the LIA policy is in order in light of recent experience and theincreased complexity of the creditor base.II. THE FUND’S LEGAL AND POLICY FRAMEWORK FORSOVEREIGN DEBT RESTRUCTURINGA.Overview of the Framework5.The Fund approach to debt restructuring is best understood in the context of theFund’s lending mandate. The Fund is mandated to provide financing to assist members inresolving their balance of payments problems within a timeframe that allows them to return tomedium term viability and repay the Fund. In most Fund-supported programs, a combination ofpolicy adjustment and financing from the Fund catalyzes spontaneous external financing from theprivate sector and, in some cases, new financing from the official sector. As a consequence, themember is able to continue to service its debt in accordance with its original terms and preservemarket access.6.The catalytic role of Fund financing is put to the test in cases where members withsignificant external indebtedness have lost—or are losing—market access. In thesecircumstances, the needs of the member are normally of such a magnitude that they exceed boththe amount of financing that can be provided by the Fund and the adjustment capacity of themember.3 Also, to ensure timely repayments to the Fund and medium-term external viability of themember, the Fund requires that there be adequate financing assurances from other sources to fillthe residual gap, both during the period of the program and in the post-program period. Goodprospects of regaining market access and debt sustainability are germane to the observance of thefinancing assurances policy. In the event that the financing gap cannot be filled with fresh resources(from the official and/or private sector), the Fund’s policy on financing assurances explicitly3Note also that Article VI, Section I of the Fund’s Articles of Agreement stipulates that a member may not use Fund’sresources to meet large and sustained outflows of capital.INTERNATIONAL MONETARY FUND7
SOVEREIGN DEBT RESTRUCTURINGencourages “the restructuring of creditors’ claims on the country on terms compatible with balanceof payments viability.”7.In cases where a member faces liquidity or solvency problems, debt restructuring maybe required in order for the Fund to provide financial support. If the problem is one ofilliquidity—when a country’s liquid assets and available financing are insufficient to meet or rolloverits maturing obligations—but there are good prospects that market access will be restored, the debtrestructuring would typically involve the rescheduling of maturing obligations. If there are solvencyconcerns—where the country is no longer able to meet the present value of its debt obligationswithout indefinitely accumulating debt—the debt restructuring may need to involve a reduction inthe debt stock.4 In either case, the extent of feasible economic adjustment combined with availablenew borrowing (including financing from the Fund) is not sufficient to address the member’sunderlying balance of payments problem. Indeed, new financing—insofar as it adds to the member’sdebt burden—may actually exacerbate the member’s solvency position. In all cases, the Fund isprecluded from providing financing unless steps are taken to address the member’s debt problemsin a manner that restores sustainability, including via the restructuring of claims of the privateand/or official sectors, and that will lead to renewed market access.8.Once it is determined that achieving sustainability requires debt restructuring inaddition to adjustment, there are broad benefits from pursuing a rapid debt restructuring.From the debtor’s perspective, a delay—and the increase in indebtedness that can occur during theperiod of delay—will usually exacerbate the economic dislocation when the debt is eventuallyrestructured.5 A delay will also prolong a period of financial instability and subdued growth owing todebt overhang effects. From the perspective of the official sector financiers, the delay will accentuateproblems of moral hazard and burden sharing, particularly if, during this period, the claims ofprivate creditors are replaced by those of the official sector. Delays also make the eventualrestructuring more painful for the residual private creditors who have not yet been bailed out.9.In light of the above considerations, the Fund has established policies that provideguidance on two central questions. First, at what point does a member’s debt become “unsustainable”? The Fund hasdeveloped policies (described further below) to address the question of whether the member’sdebt is unsustainable. The Fund’s determination on this question has an important bearing onthe timing of any restructuring. Although a decision to restructure sovereign debt is taken by themember, the member may feel that it has no choice but to do so if the Fund has decided that itcan no longer provide additional financing in the absence of measures that will restoresustainability.4As noted in Assessing Sustainability, sustainability incorporates the concepts of solvency and liquidity, withoutmaking a sharp distinction between them.5Debtors are likely to weigh the benefits and costs of delaying a restructuring. Sturzenegger and Zettelmeyer (2006)analyze the debtor’s incentives by comparing the costs of delay with the expected gain from avoiding a defaultaltogether.8INTERNATIONAL MONETARY FUND
SOVEREIGN DEBT RESTRUCTURING Second, once a determination is made that the member’s debt is unsustainable and that arestructuring is necessary, when and how should such a restructuring take place? TheFund’s involvement is also central to this set of issues, in light of the fact that creditors who areengaged in the restructuring will look to the Fund for judgments as to how much debt relief isneeded to achieve sustainability. These judgments will be formed in the context of the design ofa program that will support the restructuring process. Moreover, the Fund will seek assurancesthat the restructuring will command sufficient creditor support and, more generally, that itsterms will restore debt sustainability and ensure medium-term external viability. Accordingly,and as discussed below, while the Fund seeks to avoid micromanaging the debt restructuringprocess, it does have an interest in the timing and modality of the restructuring.B. Debt Sustainability and Market Access10.Debt sustainability is a key requirement for Fund lending. It is a prerequisite for externalviability and therefore for the success of the program and for providing safeguards that the Fundwill be repaid. Not surprisingly, the question of whether a member’s debt is sustainable is mostrelevant when a significant amount of Fund financing is sought. For these reasons, the criterion ondebt sustainability set forth in the exceptional access policy (that is, when the Fund lends above thenormal access limits) is of particular relevance to this determination.11.Closely related to the concept of debt sustainability is that of market access. The Fund’sexceptional access policy also requires that the member has prospects of (re)gaining access toprivate capital markets within the timeframe when Fund resources are outstanding. The assumptionunderpinning this criterion is that, in order for a country to address its underlyi
international fora and the Institute for International Finance has recently issued an annex to its Principles in light of the restructuring experience in Greece. Against this backdrop, this paper reviews the recent application of the Fund’s policies and practices on sovereign debt restructuring. Specifically, the paper:
7. Sovereign Loans 51 8. Sovereign Bonds 62 9. Bond Issuance 70 10. Secured Lending 80 11. Swaps 85 12. Shari'ah Compliant Sovereign Debt 90 13. Contingent Liabilities 92 0 _ Ï Í_ Ï, ÌÍ Í 14. Functions, Frameworks and Tools 108 15. Recording, Reporting and Maintaining Good Debt Data 119 16. Debt Management Strategy 125
LINKING SOVEREIGN DEBT TO CLIMATE AND NATURE OUTCOMES 4 www.iied.org List of abbreviations COP26 26th Conference of the Parties under the United Nations Framework Convention on Climate Change DFN Debt-for-nature DMO Debt management office DSA Debt sustainability analysis DSSI Debt Service Suspension Initiative EMBI Emerging Market Bond Index ESCWA United Nations Economic and Social Commission .
letter to a debt collector you owe money to does not get rid of the debt, but it should stop the contact. The creditor or the debt collector still can sue you to collect the debt. Can a debt collector contact anyone else about my debt? If an attorney is representing you about the debt, the debt collector must contact the attorney, rather than you.
Sovereign vs corporate focus: Here, we focus on hard currency debt funds only. Sovereign and mixed debt funds are dominated by rating unconstrained funds. However, the picture is more balanced when it comes to corporate debt, with 54% being unconstrained
4 ASC Subtopic 470-60, Debt – Troubled Debt Restructurings by Debtors (formerly Statement of Financial Account-ing Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings). 5 Accounting Standards Update No. 2011-02, A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring.
Workforce Planning and Restructuring Strategy [NAME SITE OFFICE] is responsible for determining overall workforce restructuring policy for its contractors. The contractors are responsible for implementation of DOE workforce restructuring policy and the oversight of restructuring programs conducted under this Plan. .
THE ABCs OF SOVEREIGN DEBT RELIEF 4 plays the role of arbiter in this process, first identifying what relief is needed through a debt sustainability analysis (DSA), and eventually providing countries with the liquidity and policy frameworks they need (alongside debt relief) to return to debt sustainability. Initiation. To initiate the process .
Annual Book of ASTM Standards, Vol 04.02. 3 For referenced ASTM standards, visit the ASTM website, www.astm.org, or contact ASTM Customer Service at service@astm.org. For Annual Book of ASTM Standards volume information, refer to the standard’s Document Summary page on the ASTM website. *A Summary of Changes section appears at the end of this .
