In December 2004, Congo reached an agreement with Paris Club creditors to treat the maturities falling due between 2004 and 2007 under the Naples Terms.

Sovereign debt restructurings with private creditors

Member countries are now divided into two classes creditors and debtors with the creditors in charge.

How long does default last before the country can reach an agreement with its creditors? How much more must it pay for access to debt markets later?

Second, the European Union has taken the least legally difficult route to debt crisis resolution the so called contractual approach, which aims at facilitating agreement with private creditors.

The delay in reaching an agreement enabled most private creditors to escape the consequences of their reckless lending to Greece.

As a result, the eurozone has become divided into creditors and debtors, with the creditors in charge of economic policy.

The Greek crisis is liable to come to a climax in the fall, even if the election produces a government that is willing to abide by Greece s current agreement with its creditors.

Judgement creditors

Table 3 Recent sovereign debt restructurings with private creditors main features

The euro crisis is now turning the EU into something fundamentally different, dividing member countries into two classes creditors and debtors with the creditors in charge.

The recent experiences of debt restructurings with private creditors are very diverse.

Statutory (preferential) creditors

Creditors in insolvency proceedings

(a) Whether creditors have dealt with a group of companies as a single economic unit

Since the last report, six African countries have rescheduled their debt with Paris Club creditors.

Eventually, the agreement will trigger Grexit, either because the creditors withdraw their support after fiscal targets are missed, or because the Greek people rebel. Triggering that exit is transparently Germany s intent.

Indeed, there are talks centered on debt, with some creditors interested in the mechanics of capitalization.

Even former creditors benefited from this rebound.

Bailing in creditors will exacerbate these trends.

Inflation would clearly make creditors worse off.

On the face of it, the voluntary arrangement with creditors might appear to have been a big success.

It was part of the standard armory of early modern European states as they dealt with their creditors.

Creditors could be offered these par bonds, or a shorter term bond with a higher coupon but with debt principal marked down.

The delay in reaching an agreement enabled most private creditors to escape the consequences of their reckless lending to Greece. Roughly half of Greece s external debt migrated from the private sector to official institutions.

Creditors can agree to relax Greece s fiscal targets.

Germany refused. Though the United States and the IMF privately sided with Greece, Germany prevailed, as creditors usually do.

Creditors and banks often preferred to do business with known borrowers, and where local jurisdictions could settle any disputes.

The table below presents the evolution of total external debt of the public sector, with a breakdown of creditors.

an agreement between creditor countries running current account surpluses and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of creditors surpluses to avoid disorderly adjustment of such imbalances.

On 29 June 2005, the Paris Club creditors announced their agreement to enter into negotiations with Nigeria on a comprehensive exit debt treatment, which would include debt reduction up to Naples terms on eligible debts and a buy back at a market related discount on the remaining eligible debts.

Because healthy competition among all potential creditors is an effective way of reducing the cost of credit, the Guide recommends that the secured transactions regime apply equally to various creditors, including banks and other financial institutions, as well as domestic and non domestic creditors.

When push comes to shove, domestic politics trumps foreign creditors.

Price inflation forces creditors to accept repayment in debased currency.

The banks creditors or governments ultimately would bear any losses.

Creditors obviously support bailing out debtor countries to protect themselves.

Creditors of a corporation cannot recover debts from a shareholder.

The alternative the liability model requires that each state take responsibility for its own debts, with its creditors bearing the costs of a default. Faced with that risk, creditors demand higher interest rates from the outset or refuse to grant additional credit, thereby imposing a measure of discipline on debtors.

As matters stand, bankers continue to benefit fully from the upside of their investments, while sharing the downside with creditors and taxpayers and sometimes with shareholders.

Actual policies, with the passing exception of Argentina s negotiation with its international creditors and the IMF, in particular are remarkably similar to those of their predecessors.

The Long Road to Agreement with Iran

The result is that the separate existence of all the companies that are subject to the pooling agreement is, in effect, ignored and all unsecured creditors of all companies participate equally in distributions from a single pool of assets.

Two recommendations dealt with creditor participation in reorganization proceedings (a) to limit the number of creditor committees to a single committee, except in extraordinary circumstances and (b) in smaller reorganization cases where creditors might have little interest in forming a committee, to provide for the appointment of a creditors' representative to monitor the case and negotiate a reorganization plan on behalf of unsecured creditors.

Europeans, both debtors and creditors, must address the banking problem forthrightly, and simultaneously with the euro, sovereign debt, and fiscal adjustment issues.

24 Collective Action Clauses included in bond or loan contracts would prevent a minority of creditors from blocking negotiations with the debtor.