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WT 3 = The International Politics of Private Sovereign Debt - Coggle…
WT 3 = The International Politics of Private Sovereign Debt
Usually soverign debt. is normally unproblematic (win win)
BUT
Theres always gonna be debt crises
report from the bank of canada on default on debt
“The core problem in managing sovereign debt crises is the lack of an effective global framework or set of institutional arrangements for restructuring government debt obligations when they become unsustainable” (Brooks and Helleiner [wk3], p. 1085)
Most of debt default is in emerging markets countries
privete debt
More money available, quick disbursement, with fewer strings attached, so
attractive to borrower
But non-concessionary
Borrowing – and repayment -- mostly in foreign currency, e.g. USD
GOVERNED BY FOREIGN LAW
This is where the banks are
but creditors can't enforce repayment
it is riskier but they can also make higher return
Repayment often depends on access to new credit (refinancing)
countries that are borrowing from private creditors are constantly worried about borrower rating
they are borrowing to repay debt so that they dont lose reputation
creditors
hedge fund
emerging markets have higher return
a way of spice up the portfolio
pension funds etc
mutual funds
public debt
Debt, Debt Crises, and Restructuring in the 1970s-80s:
A Brief History
Banks enjoy new customers; countries enjoy “conditionality-free” money
BUT
Early 80s
interest rate shoot up
Mexico, 1982
Latin America
Eastern Europe
RESPONSE
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declining
export revenues
banks stop lending
Inter Creditor Conflict
size and heterogeneity
not the case with public creditors
in early 2000s argentina had to deal with half a milion of share holders in different currencies and differet governming laws
more investors with different interests make coordination difficult
even more difficult to create a common framework
Creditors’ right to litigate creates disincentive to restructure and barriers to
restructuring
bond holders can sue the person who sold them the bond for repayment and not the borrowing coutnry
when the creditor want to restructure to the borrower the owners of the bonds can require the losses for the creditors
somebody goes to the court in new york and sya we want the full repayment even though there was restructuring
litigation
Restructuring
"Sovereign Debt Restructuring Mechanism”
(SDRM)
we cant repay
IMF unbdertakes sustainibility assessment (art not science)
we have to bring down the level of debt to X amount
all creditors talk about how to restructure it
no litigation allowed while this is doing
two thirds agree on a solution
“For debtor governments that requested and were deemed eligible for support, the SDRM would have had the power to authorize temporary payment standstills (to prevent capital outflows during crises), stays on litigation (to prevent creditors from suing debtor governments during the restructuring process), and settlements agreed to by a qualified majority of creditors (to prevent minority ‘holdout creditors’ from derailing otherwise accepted restructuring deals)” (Brooks and Helleiner 2017: 1087).
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proposed in 2001 and it died two years later
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Athe advanced CAcs resolve the creditor creditor conflict benefiting the big guys
the larger creditors are saying to the debter ""well get rid of your litigation issue" but you will have to agree to our terms
for this reason the they will reduce it too little
this is politics and nagotiation with no authority ;No state"
Case study of Argentina
2001–16: No CACs → minority holdouts could litigate in New York, blocking enforcement despite 93% acceptance and dragging resolution out to ~15 years.
Court leverage: NY rulings forced Argentina to pay holdouts before anyone else, amplifying creditor power and prolonging default.
2016 reset: Settlement restored market access, but led to rapid re-borrowing and renewed debt unsustainability.
2019–20: Enhanced CACs on all new bonds allowed a supermajority deal in <1 year by binding holdouts.
Trade-off: Faster restructuring in 2020, but with weaker debt relief (smaller reductions) than earlier deals.
restructuring unde rCACs can adress the too late problme but not the too little prblme
the reason why we are not hearing about debt restructuring is becuse countries are livign with unsustainible levels of debt
one and done sollutions like HIPC are naive
The objective of debt relief is to enable growth. Growing countries will acquire more debt -- and debt will always lead to some crises in some countries…
but theres no one common framework