Exceptional Financing & Debt Reorganisation Course on Balance of Payments and

1. Exceptional Financing & Debt Reorganisation Course on Balance of Payments and International Investment Position Manual (BPM6) IMF-PFTAC Nadi November 22-December 1, 2010 BP22

2. Introduction • Exceptional financing transactions (Appendix 1) and Debt reorganisation and related transactions (Appendix 2) • Explore various issues, treatment and accounting of exceptional financing

3. Managing the external sector/exchange rate • Economic managers • Face a range of issues and have a variety of tools • Managing the economy’s settings • Will impact on exchange rate and reserves, • While managing exchange and reserves will impact on domestic economy. • Exchange rate regime • Free float, dirty float, fixed exchange rate, exchange controls

4. Managing the external sector/exchange rate Cont. • Reserves management • Reserve assets • IMF credit and loans • Exceptional financing • Arrears of principal and interest • BOP borrowing • Debt forgiveness • Inter-government transfers • Debt restructuring

5. Analytical measurement of BOP • Analytical v neutral approach to BOP presentation • How to compile • Need to identify those transactions (and some non transactions) that will be placed ‘below-the-line’

7. Exceptional financing transactions • Transfers • Debt forgiveness and other intergovernmental transfers (including from international organizations) • Direct or other equity investment • Debt or equity swaps involving debt reduction • Borrowing • Bond issues for balance of payments support by the government or central bank, or by other sectors of the economy and induced by the authorities, usually through some form of exchange rate or interest subsidy

8. Exceptional financing transactions Cont. • Debt rescheduling or refinancing • Debt prepayment and buybacks • Accumulation and repayment of arrears

9. Debt reorganization or restructuring • Four main types • Debt forgiveness • The reduction, or the extinguishing of, a debt obligation by the creditor via a contractual arrangement with the debtor • Debt rescheduling or refinancing(or debt exchange) • A change in the terms and conditions of the amount owed, which may result, or not, in a reduction in burden in present value terms

10. Debt reorganization or restructuring Cont. • Four main types Cont. • Exchanging debt –something of economic value • Debt conversion The creditor exchanges the debt claim for something of economic value, other than another debt claim, on the same debtor • debt-for-equity swaps, debt-for-real-estate swaps, debt-for-development swaps, and debt-for-nature swaps • Debt prepayment (or debt buybacks for cash) • Debt assumption and debt payments on behalf of others when a third party is also involved

11. Accounting entries • For existing loans forgiven or rescheduled we focus on • Payments falling due in current period • Interest, interest accrued in previous periods, principal • Payments in arrears • Interest, Principal • Payments not yet due in current period • Principal • Subsequent commitments • For some swaps

12. Types of transactions • A1 – G (Appendix 1) • Transfers • Debt forgiveness • Other intergovernment grants • Debt/equity swaps • Direct swaps • Indirect swaps • Exchange of a fixed-payment liability denominated in foreign currency for a deposit liability denominated in domestic currency

13. Types of transactions Cont. • Borrowing for BOP purposes • Debt scheduling refinancing • Debt rescheduling • Loan/bond swap • Debt prepayment and buyback • Accumulation/repayments of arreas • Accumulation of arrears • Repayment of arrears • Debt for development swap