This is a focused meeting on handling severe sovereign debt crises facilitated by a discussion on some of the latest developments in research. The conversation will be prompted by recent papers by CIGI Senior Fellows Susan Schadler and Brett House (joint with Richard Gitlin).
Global economic developments over the past two years have highlighted the difficult choices — from the role of the International Monetary Fund (IMF) to whether and how the private sector involvement takes place — in resolving severe sovereign debt crises. The complexity of these issues is evident in the recent debate about how the IMF handled the bail-out of Greek creditors and in the still unresolved debate about institutional arrangements for sovereign debt restructuring.
The effort to find the right framework for constraining the IMF’s discretion in bailing out private creditors goes back almost two decades. Through repeated crises during this period, a framework that adequately balances the need for flexibility and timely, decisive responses on the part of the IMF has eluded policy-makers. IMF’s recent ex-post review of its handling of the Greek crisis is but the latest expression of this concern. Clearly, another attempt to put in place a robust framework will be needed. The process will require a vigorous debate on whether and how past practices have met needs.
Complementary to this effort will be a renewed examination of the institutional arrangements for executing sovereign debt restructuring when it is determined to be critical to crisis resolution and the return of national economies to sustainable growth. Yet, since the failure of the Sovereign Debt Restructuring Mechanism (SDRM) proposal in 2003, the world has been at an impasse between proposals for statutory- and treaty-based approaches to restructuring sovereign debt, and market-based alternatives such as collective action clauses (CACs).
Susan Schadler is a CIGI Senior Fellow. She is a former deputy director of the International Monetary Fund’s European Department, where she led surveillance and lending operations to several countries and managed a number of research teams working on European issues. Her current research interests include the sovereign debt crisis, global capital flows, global financial institutions and growth models for emerging market economies.