Nobel economist Joseph Stiglitz backs UNCTAD's work on debt workouts

10 April 2015

A workshop on a multilateral legal framework for debt restructuring processes took place on March 31st 2015, at Columbia University in New York City.

More than 40 experts from governments, civil society, the private sector, academia, and multilateral organizations participated in an open dialogue on the principles, elements and institutional options to achieve more efficient and fairer debt restructuring outcomes.

In line with its mandate as the Secretariat of the General Assembly ad hoc committee on sovereign debt restructuring processes, UNCTAD co-organized the meeting with the Initiative for Policy Dialogue (IPD).

On this occasion, UNCTAD aired its Roadmap Towards Sustainable Sovereign Debt Workouts. This document constitutes the outcome of the work engaged by the UNCTAD-coordinated Working Group on a Debt Workout Mechanism since 2013.

Joseph stiglitz
Joseph Stiglitz - American economist and Co-President, Initiative for Policy Dialogue at Columbia University

In his keynote address, Joseph Stiglitz reminded participants that the absence of bankruptcy rules at the international level, akin to what is standard practice at the national level, has been a longstanding gap in the international financial architecture.

The currently fragmented system not only lends itself to predatory practices but also unduly favours the creditor (and their bargaining power) in achieving resolution to a crisis. The outcomes tend neither to be fair nor efficient.

While Professor Stiglitz welcomed recent improvements in bond contracts, including those promoted at the IMF, he did not believe that these could address the underlying systemic weaknesses.

Rather, in a world where sovereign immunity remains a basic principle of international relations clear principles, of the kind laid down in UNCTAD's recent Roadmap, would be needed to promote more independent arbitration and ensure all stake holders buy in to institutional efforts to rebalance the system of managing sovereign debt crises.

The workshop consisted of four sessions. During the first session facilitated by Matthias Goldmann (Max Planck Institute) and Martin Guzman (Columbia University), some general principles of international law for multilateral debt restructuring processes were discussed along with whether or not a treaty-based approach was desirable.

The second session which was facilitated by Yuefen Li (South Centre), Robert Howse (New York University) and Marcus Miller (Warwick University) was primarily concerned with the specific elements needed to design a consistent debt workout mechanism from the decision to restructure to the when the debtor can exit and start afresh.

The third session was facilitated by Sebastien Solar (Central Bank of Argentina), Rodrigo Caminal (University of London) and Thomas Lambert (Lazard Bank) . It dealt with how to institutionalize a debt workout mechanism.

Three different options were debated: an independent institution with an internal tribunal, negotiations taking place in existing fora and implemented through existing tribunals, or a combination of contractual and domestic statutory improvements guided by international soft law norms.

The last session was facilitated by H.E. Sacha Sergio Llorentty (Bolivian Ambassador to the UN), Gudrun Johnsen (University of Iceland) and Albrect Ritschl (London School of Economics).

The discussion looked at past and ongoing debt problems, particularly in Western Europe, for possible lessons on ways to get institutional and political agreement on each of the options, and what institutional reforms would then be needed. The political economy of bailing in the private sector and the potential role of civil society were also examined.

While the meeting had no official conclusion, the broad consensus was that a legal framework was desirable but that it would take time to implement. The discussion shed light on the deliberate steps that will have to be taken at the international level to ensure sustainable sovereign debt workouts.