G24 Ministerial Meeting

Over the last decade or so, the debt position of developing countries, particularly in the public sector, has improved due to a combination of strong economic growth, a favourable interest rate environment and international debt relief initiatives. However, we must not be lulled into a false sense of complacency.

An increasing number of countries will likely encounter greater difficulty in servicing their debts over the coming years.

A number of challenges lie ahead:

• First, the composition of debt has changed in the last decade from predominantly syndicated bank lending to bond financing. This potentially increases financial instability during crises. Marketable securities can change hands much faster, making herd behaviour both more prevalent and more damaging.
• Second, the end of historically low interest rates in the United States - coupled with falling commodity prices and a strengthening dollar - creates a challenging economic environment for a growing number of developing countries, particularly as they go to the debt markets.
• Third, the rapid rise of external private debt, repeats a pattern seen prior to the Latin American crisis of the 1980s and the Asian crisis of the 1990s. Problems on this front have, if history is any guide, a nasty habit of ending up on the public books.

Is the international financial system well prepared to address sovereign debt problems in the coming years?

Recent developments would suggest the answer is no. The surprising interpretation of the pari-passu clause by a New York circuit court judge in the Argentinean case has raised more questions, than it answers. And the ongoing difficulties with reaching a sustainable solution on debt in Greece remind us how unsustainable debt burdens can reverse hard won development gains.

But let me focus specifically on the nearly dozen African countries that have returned to the private debt markets in recent years. This includes some of the countries around the table today (e.g. Cote d'Ivoire, Ethiopia, Ghana, and Nigeria.), as well as my own country, Kenya.

Indeed, this development is a sign of these countries taking control of their own destinies, and should be supported. However it also raises a challenge to the international community. Existing multilateral lending options are clearly not meeting country needs, particularly as they graduate from low-income and LDC status. Instead of going to multilateral concessional lenders, like World Bank's IDA or the African Development Fund, countries are issuing bonds at much higher rates of interest on the private market.

A great success of the MDGs was the debt relief achieved under the Multilateral Debt Relief Initiative in 2005. This great success threatens to be undone if better financing options and debt workout mechanisms are not found at the multilateral level. Our inability to prevent and promptly resolve debt problems is costly for both creditors and borrowers.

At present, countries face a fragmented and opaque collection of arrangements to address debt crisis resolution. The task at hand is to find solutions that foster greater financial stability by reducing excessive risk taking, while ensuring a fairer and more efficient resolution of debt crises when they happen. Both borrowers and creditors alike would benefit from timely, fair, transparent, and predictable international debt settlements.

UNCTAD welcomes the recent IMF initiative to improve collective action clauses (CACs), but we feel that a more comprehensive approach to the problem is warranted. In that regard, UNCTAD has been a long-standing advocate of orderly sovereign debt workout procedures, and we have recently formulated a Roadmap on ways to advance the international debt restructuring framework. The Roadmap outlines principles on which a debt workout framework needs to be based, encompassing legitimacy, impartiality, transparency, good faith, and sustainability.

Such a principled-based approach is timely given the widespread dissatisfaction with the existing set of procedures, as evidenced by the overwhelming number of countries that voted in the General Assembly for the adoption of resolution 68/304 entitled "Towards the establishment of a multilateral legal framework for sovereign debt restructuring processes".

Discussions on the modalities for the implementation of this resolution are ongoing in New York. To date, advanced economies and international financial institutions have not engaged in those discussions, on the grounds that the United Nations is not the place for such a technical matter. This is unconvincing, not only because UN bodies, such as my own, have been working on this issue for 50 years but because debt resolution involves a complex intertwining of economic, legal and sovereignty issues, which the universal membership of the United Nations is ideally suited to address.

Given the importance of this issue for Financing for Development, particularly in the lead up to the 3rd FfD Conference taking place in July in Addis Ababa, I encourage you, the Finance Ministers of the Group of 24, to participate in this process and provide their views. We welcome the opportunity to engage on this issue with all stakeholders -- even if their views are not fully supportive of a multilateral legal framework. I hope that we can all engage in a global dialogue on improving the internationa1 debt restructuring mechanism and better prepare for future challenges.