Chapter 15: Towards a code for sovereign debt restructuring1
Pierre Jaillet INTRODUCTION Since the adoption of the ‘Prague framework’ by the International Monetary and Financial Committee (IMFC)2 in September 2000, the international oﬃcial community has pursued and intensiﬁed its eﬀorts to strengthen crisis prevention and resolution, in particular, ensuring that greater private sector involvement has been at the center of international discussions. Recently the focus has increasingly been on addressing sovereign debt restructuring and identifying ways to make it more orderly. More generally, preventing excessive public debt accumulation has become a major concern of the international community as ill-conceived public policies have been clearly identiﬁed as a major cause of recent ﬁnancial distress in emerging economies. Recent experience has demonstrated that the risks of sovereign debt crises should not be overlooked. Sixteen months after defaulting on its external debt, Argentina embarked on the largest debt restructuring ever; Uruguay is currently planning to swap US$5.3 billion of bonds for new securities with a view to restoring medium-term debt sustainability. While in the 1980s sovereign crises used to involve mostly bank loan rescheduling, recent episodes have increasingly entailed the renegotiation of sovereign bonds, reﬂecting the evolution in the external ﬁnancing of emerging economies. (See Tables 15.1 and 15.2.) So far, experience with sovereign bond restructuring suggests that collective action problems (that is, the diﬃculty of identifying bondholders, coordinating meetings with creditors and reaching an agreement supported by a large majority of creditors) are not as severe as many had feared. However, restructuring agreements...
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