UNCTAD’s Secretary-General and the Head of the Organization’s Debt and Development Finance Branch have spoken on sovereign debt issues at a special Economic and Social Council (ECOSOC) event.
The Special Meeting on External Debt Sustainability and Development focused on Lessons learned from debt crises and ongoing work on sovereign debt restructuring and debt resolution mechanisms, and was held at United Nations Headquarters in New York.
UNCTAD Secretary-General Supachai Panitchpakdi said, in opening remarks: "Balancing the risks and opportunities of debt is always a challenge - for policymakers, investors, and ordinary citizens." He added: "As the financial sector has become globally integrated, debt crises have increasingly assumed an international dimension, too."
"Given the potential scale of the problem, the international community must aim at new, bold solutions to systemic debt problems."
Dr. Supachai said that we currently had an ad hoc collection of arrangements composed of collective action clauses. "This patchwork hinders the ability of countries to quickly address debt difficulties where they arise," he said, and leads to "pitfalls and unnecessary delays that plague the process with uncertainty."
The Secretary-General called for "a predictable mechanism to allow for orderly sovereign debt restructurings." He noted that the "high levels of sovereign debt, sluggish growth, and persistent unemployment in developed countries carry major implications and challenges for both developed and developing countries in the years ahead."
Dr. Supachai added that "any reform of the international financial architecture should place greater emphasis on crisis prevention and risk insurance", and informed the meeting that "UNCTAD has formulated a set of principles that emphasizes the need for creditors and debtors to share responsibility for preventing unsustainable debt situations. The purpose of the principles is to fill in a crucial gap in international sovereign financing."
"These principles have already gained support among a range of countries," he said.
Yuefen Li, Head of UNCTAD's Debt and Development Finance Branch, speaking later in the morning on Ongoing work on sovereign debt restructuring and debt resolution mechanisms, reviewed the history of UNCTAD's involvement in sovereign debt issues, particularly debt-restructuring mechanisms. She said that recent events, including the global financial crisis, appeared to have contributed to a change of mood among experts who had been wrestling with the debt crisis resolution issue for years.
"They have started to weigh whether having a debt workout system ex ante would be less costly and introduce greater efficiency economically and politically," she told the meeting. "In February 2013, UNCTAD organized a brainstorming meeting on how to go forward with the work on a debt restructuring mechanism. At the meeting, we could sense the change of mood from experts. In November this year, UNCTAD will organize its biannual UNCTAD Debt Management Conference. The topic of a debt restructuring mechanism will feature prominently at this conference."
"In the interim," she said, "we are in the process of organizing a working group on examination of a possible debt-restructuring mechanism."
"UNCTAD's work on the issue is being underwritten by a three-year financing commitment from the Government of Norway," she said.
"The organization's project on debt-crisis prevention includes developing a set of principles for promoting responsible sovereign lending and borrowing," said Ms. Li, "which have already been endorsed by 12 countries. There are two principles (7 and 15) specifically on debt restructuring. In view of the diversity of views on the topics, the acceptance of these two principles shows a strong potential for evolution on this issue," she told the meeting.