Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

World Bank calls for sovereign debt changes ahead of looming crises

Economy Jun 28, 2022 10:42AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Bank notes of different currencies, including Euro, U.S. Dollar, Turkish Lira or Brazilian Reais, are photographed in Frankfurt, Germany, in this illustration picture taken May 7, 2017. Picture taken May 7, 2017. REUTERS/Kai Pfaffenbach/Illust

By Marc Jones

LONDON (Reuters) - A senior official at the World Bank has ramped up its calls for changes in sovereign debt laws so governments have more control when crises strike and they have to restructure their debt.

World Bank economists estimate that low- and middle-income economies owe a record $9.3 trillion to foreign creditors and that 40 poor countries, and about half a dozen middle income ones, are either in debt distress or at a high risk of it.

"As global growth fizzles and interest rates surge, the risk of a spate of debt crises is rising - and yet the available mechanisms for tackling them are deeply inadequate," Indermit Gill, the Bank's vice president for equitable growth, finance and institutions and sovereign debt lawyer Lee Buchheit said in a blog https://www.brookings.edu/blog/future-development/2022/06/27/targeted-legislative-tweaks-can-help-contain-the-harm-of-debt-crises.

They outlined four key changes that would improve the effectiveness of the so-called Common Framework debt relief plan the Group of Twenty (G20) rich nations launched at the height of COVID-19 pandemic.

First, the blog authors said government bond contracts should stipulate that all creditors have a legal duty to cooperate "in good faith" in sovereign-debt restructurings.

Western governments traditionally negotiate separately to other lenders such as China when countries they both lend to run into trouble. Those efforts are also separate from negotiations by big global investment firms such BlackRock (NYSE:BLK) and Vanguard.

Second, all sovereign debt contracts should limit how much a creditor can collect through law suits outside the Common Framework and, in addition, include "Collective Action Clauses" which mean all bonds can be restructured as long as the vast majority of bondholders have agreed.

That in turn would clip the wings of so-called vulture https://www.afdb.org/en/topics-and-sectors/initiatives-partnerships/african-legal-support-facility/vulture-funds-in-the-sovereign-debt-context funds that try to hold out and then take governments to court to score a bigger payout for themselves.

Third, it should be made harder for creditors to seize the assets of a debt-distressed government if it has acted in good faith. During one of Argentina's debt crises, a U.S. hedge fund seized one of its navel ships when it was in Ghana.

Finally, the authors said that while collective action clauses are in many bond contracts issued over the past 20 years, they are not included in syndicated loans which make up a large part of developing country debt and such mechanisms should be retrofitted wherever feasible.

"Governments have a compelling public interest to adopt legislation to end this imbalance," the blog said, saying legal centres such New York and London would be crucial. "Consider it a long-overdue step to protect their own taxpayers".

World Bank calls for sovereign debt changes ahead of looming crises
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email