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‘Sovereign Bankruptcy: a piece of IFA still missing?’ Marcus Miller’s comments Nice paper :elegant account of Ideal Bankruptcy Arrangements followed by.

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Presentation on theme: "‘Sovereign Bankruptcy: a piece of IFA still missing?’ Marcus Miller’s comments Nice paper :elegant account of Ideal Bankruptcy Arrangements followed by."— Presentation transcript:

1 ‘Sovereign Bankruptcy: a piece of IFA still missing?’ Marcus Miller’s comments Nice paper :elegant account of Ideal Bankruptcy Arrangements followed by a Brief History of actual practice… but maybe some bits are missing! I’ll briefly summarise key contributions… then mention points to consider in any revision for the volume.

2 A Brief History of Debt Restructuring Low Income Countries Convincing critique of the Paris-Club-plus- IMF-program approach: too little write- down, too late, and badly focussed. Without a ‘fresh start’, debt postponement for insolvent countries is like helping a drowning person without pulling them out of the water – can lead to Slow Motion Submersion in debt!

3 What’s missing? In Brookings Papers (2002?) Jeffrey Sachs offered a nice model of endogenous growth to underline the need for a fresh start. Like Ravi Kanbur, Jeff emphasized the need to focus on end results (e.g. MDGs) rather than on intermediate targets for fiscal and monetary policy. Show how things have changed/improved since then-- with big write-downs and focus on MDGs under HIPC and MDRI

4 Market Access Countries Neat account of shift from Bank Loans to Bonds after the LA debt crisis of the 1980s. ‘Drowning in debt’ analysis is used to suggest that the Baker plan mistook the situation as a Liquidity Crisis and led to more debt piling up until the Brady plan led to write down. What about Merlo and Wilson idea that prompt write down would have destroyed the equity of NY Banks; so there was a strategic delay to allow the NY Banks to provision for write down?

5 The SDRM saga Authors tell the tale how SDRM was dropped in favour of CACs Do not discuss the Lesser Evil theory that SDRM was a credible threat… to get IIF to sign up to CACS and codes – as they have done.

6 What about Russia and Argentina? “ Creditors are getting paid for the risk of default but the actual loss from defaults is significantly less than what is priced into the market.” (We are told that Moody’s recovery proxy is wrong but the authors are too shy to give details of Shari Speigel’s alternative.) But the Table provided excludes Russia and Argentina, the two hefty write downs. Why?

7 Le defi Porzecanki “Restructurings are close to NPV preserving, give breathing space but no fresh start”. What is authors’ reply to Porzecanski’s challenge: that after Argentina the problem is not rogue creditor’s but rogue debtors? Would it help to refer to the new political economy theory of sovereign debt penalties? It is the take-up of of debt by locals that provides a credible punishment for default: local citizens who suffer can throw the government out of office! Ref: IDB Living with Debt (-and dying with default!)


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