Juan-Camilo Cardenas, Fernando Jaramillo, D. León, María del Pilar López-Uribe, M. Rodríguez, Hernando Zuleta
The economic crisis from the Covid-19 pandemic has generated a fall in tax revenues and an increase in the need for public spending in most economies throughout the world. This situation has led to a substantial increase in the sovereign debt levels and has dramatically reduced the fiscal space of governments. For upper- middle-income countries (UMICs), current access to financing is limited and this can potentially limit the space for climate action in the short and medium run. However, delaying climate action can generate a negative signal on fiscal sustainability due to the physical and transition risks of climate change. Unsustainable production practices will result in a deterioration of the productive capacity of natural assets reducing potential tax income. Simultaneously there will be a stronger need for public spending to face the future damages associated to greenhouse gases emissions. Therefore, in order to address the current crisis, we need an integral approach that considers the climate crisis as a challenge with a high degree of urgency. For this approach to be feasible, sufficient international climate finance needs to be available, and it should help to steer relief and recovery efforts into a direction in which these are also compatible with climate targets. In this document, we propose a sovereign debt negotiation scheme in which the conditions of the debt depend on the climate policies undertaken by the debtor countries. Likewise, we point out that the feasibility of beneficial agreements for debtors and the implementation of good climate policies depend positively on the size of the debt and each country's potential to affect the current trend of climate change. For these reasons, the formation of coalitions of debtor countries can be a key factor for debt relief and the implementation of climate policies.
{"title":"With a Little Help from My Friends: Debt Renegotiation and Climate Change","authors":"Juan-Camilo Cardenas, Fernando Jaramillo, D. León, María del Pilar López-Uribe, M. Rodríguez, Hernando Zuleta","doi":"10.2139/ssrn.3946664","DOIUrl":"https://doi.org/10.2139/ssrn.3946664","url":null,"abstract":"The economic crisis from the Covid-19 pandemic has generated a fall in tax revenues and an increase in the need for public spending in most economies throughout the world. This situation has led to a substantial increase in the sovereign debt levels and has dramatically reduced the fiscal space of governments. For upper- middle-income countries (UMICs), current access to financing is limited and this can potentially limit the space for climate action in the short and medium run. However, delaying climate action can generate a negative signal on fiscal sustainability due to the physical and transition risks of climate change. Unsustainable production practices will result in a deterioration of the productive capacity of natural assets reducing potential tax income. Simultaneously there will be a stronger need for public spending to face the future damages associated to greenhouse gases emissions. Therefore, in order to address the current crisis, we need an integral approach that considers the climate crisis as a challenge with a high degree of urgency. For this approach to be feasible, sufficient international climate finance needs to be available, and it should help to steer relief and recovery efforts into a direction in which these are also compatible with climate targets. In this document, we propose a sovereign debt negotiation scheme in which the conditions of the debt depend on the climate policies undertaken by the debtor countries. Likewise, we point out that the feasibility of beneficial agreements for debtors and the implementation of good climate policies depend positively on the size of the debt and each country's potential to affect the current trend of climate change. For these reasons, the formation of coalitions of debtor countries can be a key factor for debt relief and the implementation of climate policies.","PeriodicalId":146558,"journal":{"name":"PSN: Debt Forgiveness & Loans (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-10-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131798564","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Over the last 40 years, there have been a number of sovereign debt restructurings, most notably in the Latin American countries in the 1980s. Legally, sovereign debt restructuring has been highly problematic in terms of triggering drawn-out litigation, which can have serious adverse effects on the economy of the sovereign, let alone the citizens themselves. When it comes to resolving these crises there is no international legal mechanism or framework and, in terms of litigation, it is for national courts to adjudicate as all sovereign bonds indicate a national jurisdiction. Transnationally, there are various policy networks that play a role in shaping how sovereign debt restructurings should be done, especially in their promotion of codes of conduct and contractual clauses for sovereign bonds to make debt restructuring simpler. Thus, legal professionals have played a key role in constructing these clauses and promoting them. By using the 2012 Greek debt restructuring as a case study, I look at the role of social networks concerned with sovereign insolvency, in which EU and European actors are embedded, and to what degree policy cohesion is achieved as well as how professionals compete over controlling the issue of sovereign debt restructuring. The findings show that the high degree of contestation over sovereign debt restructuring inhibits policy cohesion, despite the EU being part of key networks on this issue, and further point to the central role of legal professionals in controlling the issue of how sovereign debt restructuring should unfold through their reflexive professional activities.
{"title":"Transnational Networks of the Sovereign Debt Restructuring Regime","authors":"N. Haagensen","doi":"10.2139/ssrn.3804767","DOIUrl":"https://doi.org/10.2139/ssrn.3804767","url":null,"abstract":"Over the last 40 years, there have been a number of sovereign debt restructurings, most notably in the Latin American countries in the 1980s. Legally, sovereign debt restructuring has been highly problematic in terms of triggering drawn-out litigation, which can have serious adverse effects on the economy of the sovereign, let alone the citizens themselves. When it comes to resolving these crises there is no international legal mechanism or framework and, in terms of litigation, it is for national courts to adjudicate as all sovereign bonds indicate a national jurisdiction. Transnationally, there are various policy networks that play a role in shaping how sovereign debt restructurings should be done, especially in their promotion of codes of conduct and contractual clauses for sovereign bonds to make debt restructuring simpler. Thus, legal professionals have played a key role in constructing these clauses and promoting them. By using the 2012 Greek debt restructuring as a case study, I look at the role of social networks concerned with sovereign insolvency, in which EU and European actors are embedded, and to what degree policy cohesion is achieved as well as how professionals compete over controlling the issue of sovereign debt restructuring. The findings show that the high degree of contestation over sovereign debt restructuring inhibits policy cohesion, despite the EU being part of key networks on this issue, and further point to the central role of legal professionals in controlling the issue of how sovereign debt restructuring should unfold through their reflexive professional activities.<br>","PeriodicalId":146558,"journal":{"name":"PSN: Debt Forgiveness & Loans (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2021-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124372051","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A multilateral initiative that can be deployed immediately is required to address the debt challenges faced by developing countries in the post COVID-19 period. This proposal for a debt relief and sustainability framework aims to be the initial stage of such a process. It aims to provide a framework to address the challenges of a sustainable and inclusive recovery, sustainable development and debt faced by developing countries. Its main purpose is to place the financing requirements of a COVID-19 recovery, 2030 Agenda and Paris Agreement at the centre of debt relief and sustainability efforts. These requirements need to become the starting point in the assessment of post COVID-19 debt relief efforts.
{"title":"COVID-19 Debt Relief and Sustainability Framework","authors":"Daniel Munévar","doi":"10.2139/ssrn.3706879","DOIUrl":"https://doi.org/10.2139/ssrn.3706879","url":null,"abstract":"A multilateral initiative that can be deployed immediately is required to address the debt challenges faced by developing countries in the post COVID-19 period. This proposal for a debt relief and sustainability framework aims to be the initial stage of such a process. It aims to provide a framework to address the challenges of a sustainable and inclusive recovery, sustainable development and debt faced by developing countries. Its main purpose is to place the financing requirements of a COVID-19 recovery, 2030 Agenda and Paris Agreement at the centre of debt relief and sustainability efforts. These requirements need to become the starting point in the assessment of post COVID-19 debt relief efforts.","PeriodicalId":146558,"journal":{"name":"PSN: Debt Forgiveness & Loans (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2020-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116622899","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Maximiliano A. Dvorkin, Juan M. Sánchez, Horacio. Sapriza, Emircan Yurdagul
The wave of sovereign defaults in the early 1980s and the string of debt crises in the decades that followed have fostered proposals involving policy interventions in sovereign debt restructurings. A key question about these proposals that has proved hard to handle is how they in influence the behavior of creditors and debtors. We address such challenge by incorporating these policy proposals into a quantitative model in the tradition of Eaton and Gersovitz (1981) that includes renegotiation in sovereign debt restructurings. Critically, the model also endogenizes the choice of debt maturity, an essential aspect of sovereign defaults and restructurings. We evaluate several policy interventions, and we identify the crucial features that matter to improve the outcome of distressed debt restructurings and reduce the frequency of debt distress events.
{"title":"Policy Interventions in Sovereign Debt Restructurings","authors":"Maximiliano A. Dvorkin, Juan M. Sánchez, Horacio. Sapriza, Emircan Yurdagul","doi":"10.20955/wp.2019.036","DOIUrl":"https://doi.org/10.20955/wp.2019.036","url":null,"abstract":"The wave of sovereign defaults in the early 1980s and the string of debt crises in the decades that followed have fostered proposals involving policy interventions in sovereign debt restructurings. A key question about these proposals that has proved hard to handle is how they in influence the behavior of creditors and debtors. We address such challenge by incorporating these policy proposals into a quantitative model in the tradition of Eaton and Gersovitz (1981) that includes renegotiation in sovereign debt restructurings. Critically, the model also endogenizes the choice of debt maturity, an essential aspect of sovereign defaults and restructurings. We evaluate several policy interventions, and we identify the crucial features that matter to improve the outcome of distressed debt restructurings and reduce the frequency of debt distress events.","PeriodicalId":146558,"journal":{"name":"PSN: Debt Forgiveness & Loans (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2019-11-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129535481","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Creditor countries and international organizations continue to disagree whether Greece should receive additional official debt relief, and if so how much. This paper first shows that these disagreements can be attributed to competing assumptions about Greece’s future capacity to repay, particularly about economic growth and the fiscal primary balance. It next evaluates the plausibility of alternative primary balance assumptions using international evidence about fiscal adjustment experiences. It concludes that primary balance paths required to make Greece’s debt sustainable are not plausible and that Greece will therefore require additional debt relief. Finally, the paper shows that the debt relief measures suggested by the Eurogroup in May 2016 (albeit with significant caveats on whether they will in fact be granted or not) could be sufficient to address Greece’s sustainability problem, provided the Eurogroup is prepared to accept both very long maturity extensions on European Financial Stability Facility (EFSF) debt (to 2080 and beyond) and interest deferrals that could lead to a large rise in EFSF exposure to Greece before it begins to decline. If the Eurogroup wishes to avoid the latter, it will become necessary to either (1) extend the scope of the debt restructuring, (2) lower the interest rates charged by the EFSF significantly below current predictions, or (3) extend European Stability Mechanism (ESM) financing beyond 2018 and delay Greece’s return to capital markets for a protracted period.
{"title":"Does Greece Need More Official Debt Relief? If So, How Much?","authors":"Jeromin Zettelmeyer, Eike Kreplin, U. Panizza","doi":"10.2139/ssrn.2946378","DOIUrl":"https://doi.org/10.2139/ssrn.2946378","url":null,"abstract":"Creditor countries and international organizations continue to disagree whether Greece should receive additional official debt relief, and if so how much. This paper first shows that these disagreements can be attributed to competing assumptions about Greece’s future capacity to repay, particularly about economic growth and the fiscal primary balance. It next evaluates the plausibility of alternative primary balance assumptions using international evidence about fiscal adjustment experiences. It concludes that primary balance paths required to make Greece’s debt sustainable are not plausible and that Greece will therefore require additional debt relief. Finally, the paper shows that the debt relief measures suggested by the Eurogroup in May 2016 (albeit with significant caveats on whether they will in fact be granted or not) could be sufficient to address Greece’s sustainability problem, provided the Eurogroup is prepared to accept both very long maturity extensions on European Financial Stability Facility (EFSF) debt (to 2080 and beyond) and interest deferrals that could lead to a large rise in EFSF exposure to Greece before it begins to decline. If the Eurogroup wishes to avoid the latter, it will become necessary to either (1) extend the scope of the debt restructuring, (2) lower the interest rates charged by the EFSF significantly below current predictions, or (3) extend European Stability Mechanism (ESM) financing beyond 2018 and delay Greece’s return to capital markets for a protracted period.","PeriodicalId":146558,"journal":{"name":"PSN: Debt Forgiveness & Loans (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-04-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133549604","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The decade and a half of litigation that followed Argentina’s sovereign bond default in 2001 ended with a great disturbance in the Force. A new creditor weapon had been uncloaked: The prospect of a court injunction requiring the sovereign borrower to pay those creditors that decline to participate in a debt restructuring ratably with any payments made to those creditors that do provide the country with debt relief. For the first time holdouts succeeded in fashioning a weapon that could be used to injure their erstwhile fellow bondholders, not just the sovereign issuer. Is the availability of this new weapon limited to the aggravated facts of the Argentine default or has it now moved permanently into the creditors’ arsenal? Only time (and future judicial decisions) will tell. In the meantime, however, sovereigns will occasionally find themselves in financial distress and their debts will occasionally need to be restructured. Venezuela already casts this chilly shadow over the sovereign debt market. If, in a galaxy not too far away, sovereign debt workouts are to have any chance of an orderly completion, a method must be found to neutralize this new weapon. Judging by the secondary market prices of different series of Venezuelan sovereign bonds, large amounts of money are being wagered that it cannot be done.
{"title":"Restructuring Sovereign Debt after NML v. Argentina","authors":"L. Buchheit, G. Gulati","doi":"10.1093/CMLJ/KMX018","DOIUrl":"https://doi.org/10.1093/CMLJ/KMX018","url":null,"abstract":"The decade and a half of litigation that followed Argentina’s sovereign bond default in 2001 ended with a great disturbance in the Force. A new creditor weapon had been uncloaked: The prospect of a court injunction requiring the sovereign borrower to pay those creditors that decline to participate in a debt restructuring ratably with any payments made to those creditors that do provide the country with debt relief. For the first time holdouts succeeded in fashioning a weapon that could be used to injure their erstwhile fellow bondholders, not just the sovereign issuer. Is the availability of this new weapon limited to the aggravated facts of the Argentine default or has it now moved permanently into the creditors’ arsenal? Only time (and future judicial decisions) will tell. In the meantime, however, sovereigns will occasionally find themselves in financial distress and their debts will occasionally need to be restructured. Venezuela already casts this chilly shadow over the sovereign debt market. If, in a galaxy not too far away, sovereign debt workouts are to have any chance of an orderly completion, a method must be found to neutralize this new weapon. Judging by the secondary market prices of different series of Venezuelan sovereign bonds, large amounts of money are being wagered that it cannot be done.","PeriodicalId":146558,"journal":{"name":"PSN: Debt Forgiveness & Loans (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2017-01-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134237810","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Compared to foreign grants, do concessional loans from foreign governments and/or unsubsidized loans from foreign private banks lead to faster growth in developing nations? The answer has implications for aid agencies (i) in allocating a given amount of resources between grants and concessional loans; and (ii) in encouraging financial market reforms. We examine the effects of ODA grants, concessional ODA loans, and private offshore bank loans on growth rates of 131 developing nations over 1996-2010 in a unified way. We find evidence of non-linearities in all three relationships, suggesting that at low (high) levels grants are better (worse) than loans (concessional or private).
{"title":"Financing Growth: Foreign Aid vs. Foreign Loans","authors":"S. Bandyopadhyay, S. Lahiri, Javed Younas","doi":"10.2139/ssrn.2343757","DOIUrl":"https://doi.org/10.2139/ssrn.2343757","url":null,"abstract":"Compared to foreign grants, do concessional loans from foreign governments and/or unsubsidized loans from foreign private banks lead to faster growth in developing nations? The answer has implications for aid agencies (i) in allocating a given amount of resources between grants and concessional loans; and (ii) in encouraging financial market reforms. We examine the effects of ODA grants, concessional ODA loans, and private offshore bank loans on growth rates of 131 developing nations over 1996-2010 in a unified way. We find evidence of non-linearities in all three relationships, suggesting that at low (high) levels grants are better (worse) than loans (concessional or private).","PeriodicalId":146558,"journal":{"name":"PSN: Debt Forgiveness & Loans (Topic)","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2013-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127952485","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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