A new approach to sovereign debt restructuring
A new approach to sovereign debt restructuring
A paper which draws togerther the latest IMF thinking on the issue of sovereign debt. The paper outlines the problems stemming from recent changes in the nature of international borrowing and explores the need for, objectives and possible features of a sovereign debt restructuring mechanism.
The potential role of the IMF in this process is explored in both financial and operational terms. Finally the legal basis for a restructuring mechanism is explored.
The paper concludes that the lack of a clear framework for restructuring has led to delays, protracted processes, unpredictability and lack of equity. The proposed solution is an international legal framework to allow a qualified majority of the sovereign’s creditors to approve a restructuring agreement binding to all as in US corporate bankruptcy law. Three additional supporting features would assist namely:
- a stay on creditor litigation after the suspension of payments
- mechanisms that protect creditor interests during the stay
- and the provision of seniority for fresh financing by private creditors
The IMF could act as arbiter of these processes.
Three outstanding questions to be considered are:
- what is the scope of the debt to be included in the voting process?
- how best to protect general creditor interests during the negotiating process
- how to structure the dispute resolution process.
Related website content
- News
Mobile money taxation in Africa: Causes and consequences (Webinar)
07 Jul 2020: In the context of the Covid-19 pandemic, cash-strapped governments across Africa will be looking for ways to fill revenue gaps. Having long faced challenges in taxing large multinational corporations and significant informal economic activities, they may be tempted to raise much-needed revenue relatively easily by imposing taxes on rapidly growing digital financial services, particularly mobile money. However, increasing mobile money usage across the continent has the potential to expand financial inclusion. - Blog Post
Britain votes to leave the European Union - what now for development cooperation?
14 Jul 2016: On June 23rd Britain voted to leave the European Union. The subsequent multi-layered political and economic consequences of this decision will play out over the next months and years.