Tackling the Next Wave of Debt Crises

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Tackling the Next Wave of Sovereign Debt Crises

Location: Meeting Halls A&B, HQ1-3-430A&B

Maps

Seminar Report

Moderator: Larry Elliott, Economics Editor, The Guardian

Panelists:

David Lipton, First Deputy Managing Director, IMF

Fanwell Bokosi, Executive Director, African Forum and Network on Debt and Development

Lee Buchheit, Legal Expert

Odette Lienau, Professor of Law, Cornell University, and Visiting Professor of Law,
Yale University

Romuald Wadagni, Minister of Finance, Benin

Recently concerns have resurfaced about rising levels of debt across advanced and emerging economies. Can the current international financial architecture provide prevention and resolution of the next wave of sovereign debt crises or does it need to be reformed?

Key Points:

· Concerns of rising sovereign debt. Lipton noted that public debt is at high levels in advanced, emerging, and low-income countries. In this context, debt vulnerability deserves close attention. Lienau highlighted that natural disasters related to climate change may increasingly impact a country's ability to pay back its debt. Buchheit noted that many countries’ debt stock is premised on the assumption that refinancing at a tolerable rate will be possible.

· Challenges of dealing with sovereign debt. Lipton noted that the sovereign debt market has become increasingly complex with the entry of new creditors, as well as the use of new instruments and contractual terms. There is a reluctance from both the borrowing and lending countries to create an international resolution system to deal with sovereign debt. Wadagni noted that the debt risk emerges when governments overpay for projects, use short-term debt to finance long-term projects and when the debt is denominated in a foreign currency. Lienau noted that more risks may come from the creditor fragmentation and the entry of new and non-traditional lenders. Bokosi stated that countries should improve their ability to detect vulnerabilities and manage debts before distress occurs. Buchheit argued that the current international legal system still works but the “holdout” problem remains a concern.

· Role of IMF. Lipton noted that the IMF helps countries to identify debt vulnerabilities. To improve debt sustainability, collective action clauses can help align the interests of creditors and debtors. Bucheit argued that the main problem is that the IMF has no way of imposing anything on countries before they ask for Fund assistance. Lienau noted that the IMF could help create intermediary mechanisms by establishing international standards for global debt markets.

· Debt transparency and lender responsibility. Panelists agreed that all creditors and debtors should be transparent on the amount and terms of the debt. Bokosi highlighted that governments need to establish flow limits on the debt burden, measure and limit overall debt stock, as well as establish a transparent public procurement system. Lipton noted that less experienced lenders need to learn from experienced lenders on the procedures for negotiating debt, accountability and burden sharing. Lienau noted that lenders need to decide when and where to lend and to make sure that debt remains sustainable. Buchheit highlighted that lenders carry the responsibility of ensuring that their loans are consistent with the laws of the debtor country.

Quotes:

“We can reduce the risk of debt crises by improving the ability to spot vulnerabilities, helping countries better manage debts at an early stage, and strengthening governments’ ability to raise revenue.” David Lipton

“The current system is not fit for purpose. We are using the same instruments as in the past to tackle a situation that has changed. Civil society is calling for a new sovereign debt restructuring mechanism.” Fanwell Bokosi

“We have a debt stock that is premised on the assumption that refinancing at a tolerable rate will be possible, and therein lies the fragility.” Lee Buchheit

“We need transparency and anticipation: the best way to resolve an issue is to avoid it happening.” Romuald Wadagni

Contributor: Bo Zhao

Debt is at record levels in advanced economies and emerging market economies. Forty percent of low income countries are wrestling with debt distress or debt levels that put them at high risk. If measures are not put in place to reduce risk, a new and broad-based wave of debt crises could emerge as a major threat for the UN 2030 Agenda for Sustainable Development. In a few countries, a debt crisis has already materialized. Can the current international financial architecture facilitate prevention and resolution of debt and financial crises? Or does it need to be reformed?

Join the conversation: #TackleDebtCrises

Moderator

Larry Elliott
Economics Editor, The Guardian

Larry Elliott joined the British newspaper the Guardian in 1988 and has been its economics editor since 1994. During his 25 years at the Guardian he has covered all the big developments in the global economy and taken a particular interest in development issues. He for example covered the Jubilee Debt campaign in the late 1990s and the Make Poverty History campaign in the build up to the 2005 Gleneagles summit.

Panelists

David Lipton
First Deputy Managing Director, IMF

David Lipton assumed the position of First Deputy Managing Director of the International Monetary Fund on September 1, 2011. On March 28, 2016, he was reappointed for a second five-year term beginning September 1, 2016. Before coming to the Fund, Mr. Lipton was Special Assistant to the President, and served as Senior Director for International Economic Affairs at the National Economic Council and National Security Council at the White House. Previously, he was a Managing Director at Citi, and also served in the Clinton administration as Under Secretary of the Treasury for International Affairs — and before that as Assistant Secretary. Mr. Lipton earned a Ph.D. and M.A. from Harvard University in 1982 and a B.A. from Wesleyan University in 1975.

Fanwell Bokosi
Executive Director, African Forum and Network on Debt and Development (AFRODAD)

Fanwel Kenala Bokosi is a PhD holder in Economics and an experienced manager in economic development. He has worked at senior levels in international organisations in various African countries. Currently he is the Executive Director for the African Forum and Network for Debt and Development (AFRODAD) a Pan-African organisation that operates in 23 countries in the continent. He also taught in many economics courses at the University of Kent, London School of Accountancy and Management and in other Universities in Africa. His experience and skills include excellent understanding of economic development; policy and advocacy; financial and accounts management; rights based approach to development and liaison with partners including implementing agencies, donors and government.

Lee Buchheit
Legal Expert

Lee Buchheit, called by the Financial Times the “doyen of sovereign debt restructurings”, has advised countries from Mexico to Greece in virtually all major debt restructurings since the 1980s. He has published more than 40 publications and articles in the field of international finance and has lectured all over the world. Mr. Buchheit was a Senior Partner at Cleary Gottlieb Steen & Hamilton for over four decades. He currently resides in New York City.

Odette Lienau
Professor of Law, Cornell University, and Visiting Professor of Law,
Yale University

Odette Lienau is Professor of Law at Cornell and Visiting Professor of Law at Yale. She is the author of "Rethinking Sovereign Debt: Politics, Reputation, and Legitimacy in Modern Finance" (2014), winner of an American Society of International Law book award. She has practiced in the Financial Restructuring & Insolvency Department of Shearman & Sterling, LLP, and most recently advised on sovereign debt as an expert for UNCTAD. She received her A.B. and Ph.D. from Harvard and her J.D. from NYU.

Romuald Wadagni
Minister of Finance, Benin

H.E Romuald Wadagni has been the Minister of Economy and Finance of the Republic of Benin since April 2016. An accountant by training, he previously worked as an Associate at Deloitte in France, the USA, and Africa and was nominated in 2015 audit director for the group in francophone Africa. He is a specialist of international accounting standards, offerings transactions (IPO, fundraising) and public and private firms restructuring. Mr. Wadagni has a degree from Harvard Business School (USA) and Ecole Superieure des Affaires (France).

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