A New Deal for Debt Overhangs?

A New Approach to Eurozone Sovereign Debt

Can we engineer new debt contracts for countries like Argentina?

The new non concessional debt more than offset the debt relief received, although export earnings have increased since 2001.

Figure 2 shows the breakdown between new (net) transfers and debt forgiveness.

Some countries achieved a real exit from a debt crisis, while others continued to face a lingering debt problem or are considering new debt renegotiations (as in the case of Ecuador).

Or it could be a soft default in which Greece unilaterally services its existing debt with new debt rather than paying in cash.

They will buy the new government debt and leave all spending decisions unaltered.

But there remain little new securitization and bank debt offerings without government backup.

Indeed, these private funds account for about two thirds of all new debt.

Its response was to offer targeted and expedited debt relief often by bringing in new temporary bankruptcy legislation that forced limited debt write downs.

They are more focused on paying down massive debt overhangs built up before the crisis than on assuming new debt and boosting aggregate demand.

For countries that have reached the completion point, the challenge is to achieve lasting debt sustainability and avoid falling into a new debt trap.

Following that, the restructured bank can be recapitalized by raising new debt and equity.

It was the equivalent of a Chapter 11 restructuring of American corporate debt, in which debt is swapped for equity, with bondholders becoming new shareholders.

It is time to rethink the problem and to devise new financial mechanisms to resolve the debt problem that do not lead to debt accumulation.

The amount of debt relief would then be determined on the basis of expected development assistance and the need to avoid a new debt overhang.

Some states, like Virginia, had already paid much of their debt, and others saw their debt as having become a financial game for New York speculators.

The five countries in trouble will need to place tens of billions of euros in new debt and roll over even larger amounts of old debt.

At a time when new sovereign debt restructurings are distinct possibilities, such action is crucial.

Higher inflation would cause the interest rate on new debt to rise in a way that prevents the erosion of the real value of the total debt.

In a highly innovative move, Argentina exchanged old debt for new debt at about 30 cents on the dollar or a little more plus a GDP indexed bond.

US states entered their new union with different debt loads and different capacities to service them.

New money should go to good performers, not just to those who are experiencing debt distress.

Investors in the coming years will need to be persuaded to hold mountains of new debt.

Under Chapter 11, companies with a solid underlying business generally swap debt for equity. Old equity holders are wiped out and old debt claims are transformed into equity claims in the new entity which continues operating with a new capital structure.

ATHENS The point of restructuring debt is to reduce the volume of new loans needed to salvage an insolvent entity. Creditors offer debt relief to get more value back and to extend as little new finance to the insolvent entity as possible.

Collateralized debt obligations (CDOs, mainly tied to mortgages) made a new population of aspiring homeowners supposedly creditworthy by enabling the originating banks to sell sub prime debt to other investors.

Every single Treasury auction, at which the market gobbles up huge new tranches of US Treasury debt at high prices, belies the argument that the economy has too much debt.

Instead, they focused exclusively on US foreign debt, ignoring household debt (mortgage and consumer debt), public debt, business debt, and financial debt.

NEW YORK A recent decision by a United States appeals court threatens to upend global sovereign debt markets.

NEW HAVEN Yes, the United States dodged another bullet with a last minute deal on the debt ceiling.

Some developed countries have made new commitments in terms of official development assistance to Africa and debt relief.

Meanwhile, the lion s share of the new budget, 63 , will go to the military, police, administration, and debt service.

NEW YORK Today s swollen fiscal deficits and public debt are fueling concerns about sovereign risk in many advanced economies.

Debt sustainability and debt relief

Why do Greece s creditors refuse to move on debt restructuring before any new loans are negotiated? And why do they prefer a much larger new loan package than necessary?

At that point, the Europeans should get on with completing their monetary cordon sanitaire orderly debt restructuring in all countries with debt burdens that are too large to be credibly restructured in Merkel s new regime.

That, in turn, has created a new set of worries for banks that are over exposed to supposedly secure government debt.

That is because an increase in the inflation rate causes interest rates on new debt to rise by an equal amount.

Second, the ECB could offer to provide special treatment secured financing on the new debt to make it attractive to investors.

More debt relief encompassing more countries and more debt (including bilateral debt) is needed.

NEW YORK As the United States takes up the decision to lift its self imposed debt ceiling, we would do well to remember why America s public debt is as large as it is, and how it matters.

We intend to promote new efforts in matters of foreign debt that transcend our bilateral obligations in the framework of the Heavily Indebted Poor Countries (HIPC) Debt Initiative and to contribute decisively to the solution of the problem of the external debt of these countries with the multilateral financial institutions.

But hints of new fiscal imprudence or of backsliding on long term debt consolidation and reduction can drive up borrowing costs dramatically.