Finance for Development Lab reposted this
🚨 New Policy Note Alert: "The Pitfalls of Value Recovery Instruments (VRIs) in Sovereign Debt Restructuring" 🚨 In a new paper published by the Finance for Development Lab (with thanks to Ishac Diwan and Martin Kessler), I explore the potential and limitations of VRIs in debt restructuring. While VRIs hold promise, several key challenges are hindering their effectiveness: 🔑 Asymmetry: VRIs reward creditors in good times but fail to protect debtors in bad times, creating imbalances that can lead to costly outcomes for countries. 💡 Valuation and Liquidity Issues: Design flaws like complex valuation and lack of liquidity limit VRIs' potential to provide meaningful relief. 🏆 Key Takeaway: For VRIs to work effectively in the future, they must include better debtor protections and deeper haircuts for creditors. It's about sharing both risks and rewards fairly. Just like the Wright brothers we should not give up on the idea, but like them (who wisely chose Kitty Hawk over the Grand Canyon for their flight tests) we should approach VRIs with a careful and thoughtful strategy. Read the full policy note here 👉 https://lnkd.in/e9brdwnb #DebtRelief #EconPolicy #SovereignDebt #VRIs #PolicyAnalysis #FinDevLab Geneva Graduate Institute CFD - Centre for Finance and Development
