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‘Sovereign Bankruptcy: a piece of IFA still missing?’ Marcus Miller’s comments

‘Sovereign Bankruptcy: a piece of IFA still missing?’ Marcus Miller’s comments. Nice paper :elegant account of Ideal Bankruptcy Arrangements followed by a Brief History of actual practice… but maybe some bits are missing! I’ll briefly summarise key contributions…

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‘Sovereign Bankruptcy: a piece of IFA still missing?’ Marcus Miller’s comments

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  1. ‘Sovereign Bankruptcy: a piece of IFA still missing?’Marcus Miller’s comments • Nice paper :elegant account of Ideal Bankruptcy Arrangements followed by a Brief History of actual practice… • but maybe some bits are missing! • I’ll briefly summarise key contributions… • then mention points to consider in any revision for the volume.

  2. A Brief History of Debt Restructuring • Low Income Countries • Convincing critique of the Paris-Club-plus- IMF-program approach: too little write- down, too late, and badly focussed. • Without a ‘fresh start’, debt postponement for insolvent countries is like helping a drowning person without pulling them out of the water – can lead to Slow Motion Submersion in debt!

  3. What’s missing? • In Brookings Papers (2002?) Jeffrey Sachs offered a nice model of endogenous growth to underline the need for a fresh start. • Like Ravi Kanbur, Jeff emphasized the need to focus on end results (e.g. MDGs) rather than on intermediate targets for fiscal and monetary policy. • Show how things have changed/improved since then-- with big write-downs and focus on MDGs under HIPC and MDRI

  4. Market Access Countries • Neat account of shift from Bank Loans to Bonds after the LA debt crisis of the 1980s. • ‘Drowning in debt’ analysis is used to suggest that the Baker plan mistook the situation as a Liquidity Crisis and led to more debt piling up until the Brady plan led to write down. • What about Merlo and Wilson idea that prompt write down would have destroyed the equity of NY Banks; so there was a strategic delay to allow the NY Banks to provision for write down?

  5. The SDRM saga • Authors tell the tale how SDRM was dropped in favour of CACs • Do not discuss the Lesser Evil theory that SDRM was a credible threat… • to get IIF to sign up to CACS and codes – as they have done.

  6. What about Russia and Argentina? • “ Creditors are getting paid for the risk of default but the actual loss from defaults is significantly less than what is priced into the market.” • (We are told that Moody’s recovery proxy is wrong but the authors are too shy to give details of Shari Speigel’s alternative.) • But the Table provided excludes Russia and Argentina, the two hefty write downs. Why?

  7. Le defi Porzecanki • “Restructurings are close to NPV preserving , give breathing space but no fresh start”. • What is authors’ reply to Porzecanski’s challenge: that after Argentina the problem is not rogue creditor’s but rogue debtors? • Would it help to refer to the new political economy theory of sovereign debtpenalties? It is the take-up of of debt by locals that provides a credible punishment for default: local citizens who suffer can throw the government out of office! • Ref: IDB Living with Debt (-and dying with default!)

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