Restructuring Sovereign Debt: The Case for Ad Hoc Machinery

357 Pages·2003·1.88 MB·English

by  Lex Rieffel

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The Case for Ad Hoc Machinery
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Washington, D.C.
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Copyright © 2003
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Library ofCongress Cataloging-in-Publication data
Rieffel,Lex.
Restructuring sovereign debt :the case for ad hoc machinery / Lex
Rieffel.
p.;cm
Includes bibliographical references and index.
ISBN 0-8157-7446-X (cloth)
1. Debt relief—Developing countries.2. Loans,Foreign—Developing
countries.3. Debts,External—Developing countries. I.Title.
HJ8899.R52 2003
336.3'6—dc22 2003015470
9 8 7 6 5 4 3 2 1
The paper used in this publication meets minimum requirements ofthe
American National Standard for Information Sciences—Permanence ofPaper for
Printed Library Materials:ANSI Z39.48-1992.
Typeset in Minion
Composition by OSP,Inc.
Arlington,Virginia
Printed by R.R.Donnelley
Harrisonburg,Virginia
    
Marc-Aurèle Rieffel and Mary Bush Rieffel
who inspired me to write
   
Alaire Bretz Rieffel
always my most solid and stoic supporter
Reinventing the Square
The seven brothers (Canada, France, Germany, Italy, Japan, United
Kingdom, and United States), led by Sam, had overcome many
obstacles during sixty years in the business ofdelivering global financial
stability. Their truck had survived rough terrain, violent storms, and
occasional collisions. One day a large pothole caused a blowout. Instead
of replacing the tire with the familiar brand, their favorite repair shop
proposed a new prototype that would never wear out. It was guaranteed
to withstand potholes, nails, and all other perils. Their customers, how-
ever, worried that a square tire would make the truck bounce too much
and jostle their merchandise. Could it be that, as usual, the customers
are right?
Contents
Preface ix
List ofAcronyms xiii
1 Sovereign Default in the Bretton Woods Era 1
2 Fundamental Concepts 9
3 The Main Players 24
4 Fundamental Issues 45
5 The Paris Club 56
6 The Bank Advisory Committee (London Club) Process 95
7 The North-South Dialogue in the 1970s 132
8 The Debt Crisis ofthe 1980s and the Brady Plan Solution 149
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viii 
9 The HIPC Initiative in the 1990s 178
10 The Post-1994 Crises and the Role ofBonds 188
11 The Debate over Private Sector Involvement, 1995–2002 220
12 What Is Broken? What Fixes Make Sense? 260
Appendixes
A “Countries Don’t Go Bankrupt” 289
B Five Milestone Cases 295
References 317
Index 327
Preface
T
he international financial system in place in 2003 is the tree that has
grown from seeds planted at a conference in Bretton Woods, New
Hampshire,in 1944.World prosperity was the intermediate objective;world
peace was the ultimate objective.
Sixty years later,progress on the economic front,measured in the con-
sumption ofgoods and services,is easier to see than progress on the politi-
cal front, measured by the frequency and intensity of armed conflict.Yet
the road to relative prosperity has been far from smooth.A third of the
world’s population appears mired in poverty.Economic growth has been
interrupted by several cataclysms, including the breakdown of the fixed
exchange rate system in the 1970s and the developing country debt crisis in
the 1980s.A series of financial crises in emerging market countries in the
late 1990s was still roiling the waters in mid-2003, and concerns about a
period ofglobal deflation emanating from the United States,Japan,and the
European Union were beginning to surface.
Even ifthe momentum ofglobal growth resumes and restores a sense of
stability to the system,debt problems among emerging market and other
developing countries are likely to wreak hardship on innocent populations
for years to come.These problems will also inspire more proposals for “per-
manent machinery”—some kind of formal international institution like a
bankruptcy court—to ensure speedier and more orderly debt workouts.
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