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Resolving Sovereign Debt Crisis.

Added 08 Nov 2013

Eurodad member erlassjahr.de, in cooperation with the Friedrich-Ebert Foundation, has launched an updated edition of their report “Resolving Sovereign Debt Crisis. Towards a Fair and Transparent International Insolvency Framework”.

The report that was launched at the 2013 Annual Meetings of IMF and World Bank surveys the history and evolution of sovereign debt management since the 1980s. It outlines the need for reform, based on a thorough analysis of the shortcomings of the current debt management regime. It then maps the most prominent proposals for international insolvency procedures and evaluates them against a set of principles for reforms towards fairer and more sustainable outcomes.

The report shows that proposals for orderly debt workout mechanisms are not new. They have been a permanent feature since the regular jubilee debt relief years in the bible’s old testament, to the theories of the classical economist Adam Smith in the 18th century, to the debates at the Bretton Woods conference in 1944.  The report closes by outlining the necessary steps to introduce a fair and transparent debt workout procedure now.  

Download the report here

Read the report’s summary here:

  • Due to the global financial crisis, external sovereign debt has again become a problem to a broad range of countries – from European high-income countries to the poorest states on earth – even after they had obtained debt relief through existing multilateral initiatives. Despite long-standing experiences with sovereign insolvencies, however, no mechanism presently exists to deal with the complex debt structures of many countries in a comprehensive way.
  • Existing debt workout procedures – such as the Paris Club, HIPC/MDRI, or Brady-style debt conversion – have either been one-off exercises not meant to be applied as a permanent mechanism, or they are reinforcing collective action problems for being piecemeal in character.
  • This study therefore argues to apply principles and procedures of domestic insolvency to sovereigns, in order to reach a fair and sustainable debt workout. It explains the principles of an ad-hoc or an institutionalized framework, and describes the possibilities to obtain political support and technical advice for countries that may find themselves in need of an orderly debt workout process.