Hector Torres’ Post

Impressive paper re sovereign debt restructuring by my colleagues Mattia Osvaldo Picarelli and Aitor Erce, and Enrico Mallucci, reflecting on domestic and external sovereign defaults from 1980 to 2018! Interesting read for policy-makers, researchers, academics, lawyers and practitioners alike. #ESM #euro #debt #sovereigndebtrestructuring #restructuring #default

❓ Do sovereign defaults on private sector creditors differ depending on whether the default involves a government’s domestic or external debt? ESM Senior Economist Mattia Osvaldo Picarelli, together with Aitor Erce and Enrico Mallucci, answer this question in the latest ESM Working Paper, “Sovereign Defaults at Home and Abroad.” ⚖️ The paper provides a systematic comparison of domestic and external sovereign defaults from 1980 to 2018. The analysis covers: ▪️ Details of the default events; ▪️ a description of different macro-financial political and geo-economic environments in which they occur; ▪️ and type of restructuring applied. 💡 The authors find that defaults at home and abroad are equally frequent, and governments often default selectively. 💡 They also observe that domestic debt restructurings normally proceed faster, involve smaller volumes of debt, and are associated with larger creditor losses than external ones. The findings offer important information for policymakers who design policies to tackle debt in distress, as well as researchers working on the correct calibration of the theoretical sovereign default model featuring domestic debt. It can also be useful for political scientists and sociologists interested in the interplay between domestic defaults and political cycles, geo-economics, institutional stability, or economic inequality. Read ESM Working Paper 60 https://lnkd.in/eVaKWGhT #ESMeuro

I lead the AU delegation @ G20 4th IFAWG ongoing in Seoul on 05 and 06 September 2024. The meeting is focusing its discussions on addressing vulnerabilities emerging from the cross-border integration of payment systems and promoting resilient capital flows to EMDEs; addressing sovereign debt issues; making the GFSN more effective, representative and resilient and making MDBs better, bigger and more effective. In my interventions on the first day, I stressed the need for the AU to see the policy framework being in coherence with Africa's long-term strategic goals, outlined in Agenda 2063. I also stressed that AU is keen on promoting innovations that promote cross-border payments to enhance financial inclusion, boost intra-African trade, and support the broader economic integration efforts like AfCFTA. I also highlighted that the African Union, emphasizes the importance of structural policies that enhance the resilience of capital flows to EMDEs. This includes promoting economic diversification, strengthening of financial systems, and improving regulatory frameworks. The AU is also advocating for policies that align with the G20's focus on sustainable development and economic integration, as these are crucial for building resilient economies across Africa. I also stated that the AU emphasizes the need for comprehensive debt restructuring to address the high levels of external and domestic debt in African countries. This includes advocating for reforms in the G20's CF for DT to ensure transparent, timely, and effective debt restructurings.

Credit to International Monetary Fund 796,373 followers in LinkedIn April 2, 2024 Defining public debt: One-third of countries surveyed do not define clearly whose debt should be monitored or reported, https://lnkd.in/gVPmSNRA Hidden debt-borrowing for which a government is liable, but which is not disclosed to its citizens or to other creditors-amounts to $1 trillion globally. Our new paper, The Legal Foundations of Public Debt Transparency: Aligning the Law with Good Practices, presents findings from a survey of 60 countries that examined vulnerabilities and loopholes in national laws that hinder debt transparency. For example, (1) fewer than half the countries surveyed have laws that require debt management and fiscal reports, (2) while less than a quarter require disclosure of loan-level information--key legal features for facilitating transparency Read more in IMF blog: Hidden Debt Hurts Economies. Better Disclosure Laws Can Help Ease the Pain. https://lnkd.in/ers3n6G2

My research paper on the future of the G20 Common Framework (for restructuring sovereign debt) has just been published by Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School. I wish to thank Carmen Reinhart, Richard Zeckhauser, John Haigh, Dan Murphy, Eriko Togo, Théo Maret, Michael Sarty, and M-RCBG Senior Fellows for their useful comments and discussions at various stages of this research. Abstract: Since the approach envisaged under the Common Framework attempts to bring together a larger and more diverse group of creditors than usually observed in sovereign debt restructurings, consistent with the Theory of Collective Action, additional measures may be required to compensate for the added complexity and incentive issues. To address this de facto collective action problem, the paper proposes a modified framework that is based on: (1) simplicity and speed with elements of coercion and enticement, (2) improved coordination based on a more prominent role for the US and China, (3) a more nuanced treatment of domestic debt within the restructuring perimeter, and (4) a modified “comparability of treatment” principle. While multilateral debt will not be restructured under the proposed approach, the International Financial Institutions with exposure to sample countries are expected to contribute to safeguarding financial stability of domestic financial sectors.

Attention Debt Managers: Navigating the importance of debt transparency has never been more crucial. A new paper by the IMF Legal Department underscores how debt opacity can exacerbate vulnerabilities, affecting economies worldwide. Embracing transparency is key to sustainable borrowing, effective fiscal management, and empowering institutions. Domestic legal frameworks play a crucial role in ensuring transparency by transforming international standards into legally binding rules. Let's champion comprehensive, accurate, and timely debt data for a more resilient financial future. #DebtManagement #Transparency #IMF #SustainableBorrowing https://lnkd.in/evhDsWsA

Despite government debt to GDP in advanced economies exceeding post-war highs - and the associated risks to growth and financial stability - there continues to be a lack of urgency about addressing these debt overhangs. Polarised politics and election cycles in the G7 may continue to push out serious efforts to address debt overhangs but here’s a bid to explain why that would be a mistake and to push this issue up the priority list for the G7.

Opening Remarks by Deputy Managing Director Kenji Okamura at the Fiscal Policy and Sovereign Debt Conference - what importance does US have in global public debt levels? What are the implications for emerging economies? https://lnkd.in/dDAjnyiE

I asked Perplexity how can the United States substantially reduce its debt while still functioning well as a nation and effective influence on global affairs? Here is what it answered: The U.S. can take several steps to reduce its debt liability while still operating effectively as a country in the world:Implement fiscal consolidation through a combination of spending cuts and revenue increases13:Reduce spending on entitlement programs and defense, which make up a large portion of the budget Promote economic growth through structural reforms3:Implement policies that boost productivity and potential output, such as labor market and product market reforms Manage foreign capital inflows and trade deficits2:Consider policies to limit foreign capital inflows, which can contribute to rising debt levels Undertake debt restructuring as a last resort for countries in debt distress3:Debt restructuring can significantly reduce debt ratios when combined with fiscal consolidation, especially in emerging markets and low-income countries Maintain strong institutions and fiscal frameworks3:Prevent "below-the-line" operations that can undermine debt reduction efforts By implementing a comprehensive approach that combines fiscal consolidation, growth-promoting policies, and debt management strategies, the U.S. can work to reduce its debt burden while still maintaining its global leadership role and economic strength.

GDP Warrants, Oil Warrants, Macro Linked Bonds, VRIs, Contingent Payment Obligations, GDP Bonds, etc… These are complex instruments that are often mispriced and have attracted disputes… …but they are often the critical element for getting a sovereign debt restructuring done. Lee Buchheit and I suggest a better design in this paper now up on SSRN. Check it out! Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School Centre for International Governance Innovation (CIGI) https://lnkd.in/egh8Jcyx