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Joint Committee Welcomes the Voluntary Nature of Greek Debt Restructuring, Underscores Importance of Cooperative Approach Based on the Principles
Effective Crisis Prevention Requires Emphasis on Sound Policies, Open Dialogue, Cooperative Efforts on Surveillance, Enhanced Risk Management
Washington D.C., October 24, 2012 — Against the backdrop of the sovereign debt crisis in the Euro Area, and particularly following the voluntary debt exchange for Greece, it is vital for the international financial community to work to strengthen the framework for crisis prevention and resolution. Towards that end, a report just issued by the public-private sector Joint Committee on Strengthening the Framework for Sovereign Debt Crisis Prevention and Resolution* strongly recommends that sovereign issuers take a voluntary approach to pursuing good-faith negotiations with creditors to achieve agreement on fair debt restructuring, should it prove to be unavoidable, in accordance with the well-established Principles for Stable Capital Flows and Fair Debt Restructuring. The Principles have served as a guiding framework for the good-faith negotiations between private creditors and Greece, in consultation with the official sector, on the voluntary debt exchange.
Effective sovereign debt crisis prevention is a shared responsibility. As underscored by the Principles, this requires on the part of sovereign debtors an unwavering emphasis on sound policies, data and policy transparency, and good investor relations as well as open dialogue with creditors. It is also essential to ensure sustained surveillance by regional and international institutions and private sector groups, appropriate action by regulatory agencies, accounting and other international standard setters, as well as vigilance and enhanced risk management by private creditors.
Fair treatment of all creditors is very much in the interest of both issuers and creditors, and will support broad creditor participation in any necessary debt restructuring. Comparable treatment is essential to ensure fair burden sharing, and to avoid subordination of the claims of some classes of private-sector creditors. Treating creditors equitably will encourage voluntary participation in debt resolution and minimize any adverse impact on investor demand for sovereign debt more broadly. A key objective of debt restructuring is to restore market access for sovereign debtors as quickly as possible; however, concerns about creditor subordination could weigh on private-sector demand.
Critically, during restructuring negotiations, private creditors need to have the opportunity to discuss relevant changes in the underlying macroeconomic framework and reform program—including the debt sustainability analysis—on a regular and timely basis with the sovereign debtor, in close consultation with the official sector. The guidelines of the Principles, which advocate voluntary, cooperative and market-based procedures for debtor-creditor dialogue, remain a cornerstone of sovereign debt crisis prevention, management and resolution. A cooperative approach will greatly facilitate early restoration of market access, which is vital to achieving debt sustainability over time—allowing the official sector to gradually reduce its exceptional financial assistance to program countries.
*Note to editors:The IIF’s Joint Committee on Strengthening the Framework for Sovereign Debt Crisis Prevention and Resolution is a public-private sector initiative launched under the auspices of the Co-Chairs of the Group of Trustees (Governor Agustín Carstens of Banco de México; Governor Christian Noyer of the Banque de France, Governor Zhou Xiaochuan of the People’s Bank of China and former Governor of the Bank of Japan, Toshihiko Fukui). The Joint Committee is chaired by Jean Lemierre, Senior Advisor to the Chairman, BNP Paribas and Co-Chair of the IIF Special Committee on Financial Crisis Prevention and Resolution; Thomas Wieser, President, Eurogroup Working Group; David Mulford, Vice-Chairman International, Credit Suisse Group; and Gerardo Rodríguez Regordosa, Undersecretary of Finance and Public Credit, Mexico. The Joint Committee’s report was endorsed by the Group of Trustees during their Annual Meeting in Tokyo on October 14, 2012.