Restructuring Debt Restructuring

The Lethal Deferral of Greek Debt Restructuring

The mechanics of debt restructuring are straightforward.

Devaluation and debt restructuring worked.

Proposals on debt restructuring frameworks

But internal devaluation requires debt restructuring.

Calls for immediate debt restructuring went unheeded.

Sovereign debt restructurings with private creditors

Debt restructurings often entail conflicts among different claimants.

If this principle prevails, no one would ever accept debt restructuring.

There have been many proposals on debt restructuring mechanisms.

India did its part by writing off the debt owed by African countries under the HIPC Initiative and by restructuring commercial debt.

But the restructuring of debt has been too little and has come too late.

So the need for debt restructuring is an unavoidable reality.

But, as we know from experience, there is life after debt restructuring.

This could then have been complemented by a simultaneous agreement to restructure private debts.

In an ideal world, Europe would deal with its excessive debt burdens through a restructuring of Greek, Irish, and Portuguese liabilities, as well as municipal and bank debt in Spain.

Some combination of debt restructuring and permanent debt monetization (quantitative easing that is never reversed) will in some countries be unavoidable and appropriate.

As a result, there is not even the pretense of attempting fair and efficient restructurings.

Sovereign debt was eventually restructured through the creation of Brady bonds.

There is a simple way to deal with a debt overhang reduce payments by restructuring the debt.

a An option was included to convert US 30 year bond into a US 12 year bond with debt reduction.

But the most contentious part of debt restructuring could well be reaching inter governmental agreements.

Then, once the financial system has been stabilized, a combination of debt restructuring and recapitalization is required.

Unfortunately, however, ideas for debt restructuring mechanisms remain just that purely theoretical constructs.

Indeed, the agreements have been used to challenge government actions ranging from debt restructuring to affirmative action.

In these cases, debt restructurings produced a haircut on exchanged bonds.

First, as Lee Buchheit, the attorney who oversaw the Greek private restructuring, has proposed, maturities on official Greek debt could be greatly extended.

Fifth, debt burdens that cannot be eased by growth, savings, or inflation must be rendered sustainable through orderly debt restructuring, debt reduction, and conversion of debt into equity.

Debt restructuring writing down the debts of homeowners and, in some cases, governments will be key.

After the Argentine crisis, President George W. Bush s administration vetoed proposals to create a mechanism for sovereign debt restructuring.

The size of the haircut tended to be commensurate with the depth of the economic recession before restructuring.

That is why, for domestic debt disputes, countries have bankruptcy laws and courts. But there is no such mechanism to adjudicate international debt disputes.

Six months later, after substantial official funds had been used to pay private creditors, the outstanding private debt was substantially restructured.

UNCTAD has continued to provide support to African and other debtor countries in preparing their negotiations on the rescheduling or restructuring of bilateral official debt in the framework of the Paris Club.

At the very least, it renders non viable all debt restructurings under the standard debt contracts.

But it is a bit late for the ECB to describe debt restructuring as unthinkable.

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

Seen in these terms, it is clear why the German government s proposed debt restructuring mechanism immediately shifts weaker eurozone countries towards default.

By contrast, debt restructuring for either banks or governments is politically unacceptable in Europe.

That means more debt restructuring and more bank closures now, rather than watering down proposals to rein in freewheeling markets.

The international community has, so far, failed to develop effective and equitable arrangements for restructuring sovereign debt, despite the clearly dysfunctional and problematic consequences of past international public debt crises.

Waiting to restructure unsustainable debts would only lead to disorderly workouts and severe haircuts for some private creditors.

The risk of default or debt restructuring induces creditors to be more careful in their lending decisions.

The cost of debt service adjusts automatically, without the severe disruption that results from loss of confidence, crisis, debt restructuring, and so forth.