Consultation Workshop on External Debt AVOIDING THE 2015 DEBT CRISIS AVOIDING THE 2015 DEBT CRISIS Proposals for Transparent Institutional Structures to Prevent and Resolve Future Debt Crises: The Potential of FTAP and Impediments Kunibert Raffer © K.Raffer

“The international financial system is incomplete and insecure without a sovereign debt workout mechanism and a new effort needs to be launched in this regard.” “The increase of concessional and non-concessional lending, including by emerging creditors, would point to the need for work on an internationally accepted debt workout mechanism that involves all creditors. Countries thus need to agree on a set of principles for resolving potential debt crises that provide for fair burden-sharing between the public and private sectors and among debtors, creditors and investors.” Report of the Secretary-General, 10 August 2007, General Assembly (A /62/217) UN, pp.26f)

"I would go a step further and propose that, in the future, we consider an entirely new approach to handling the debt problem.... establishing a debt arbitration process to balance the interests of creditors and sovereign debtors and introduce greater discipline into their relations.“ Kofi Annan (2000) “Freedom from Want”, in: We, the People, Millenium Report, p.38) …investors should accept some modifications because it can be in their best interest: “A writedown that is sufficient to make borrowers eligible for a new loan would remove the downside risk to investors of additional writedowns or a re-default. ” Ben Bernanke, WSJ 5 March 2008, p.13

FTAP (MY 1987 PROPOSAL): NO TECHNICAL IMPEDIMENTS AT ALL BUT LACKING POLITICAL WILL OF OFFICIAL CREDITORS TO ACCEPT & IMPLEMENT THE RULE OF LAW IMPORTANT ELEMENTS OF MY PROPOSAL (RAFFER 1989, 1990) MEANWHILE ACCEPTED AND PRACTICED

 Debtor Protection HIPC II (PRSPs), MDRI, MDGs (Gleneagles Decision by G8)  Right to be Heard Present CSO-participation at least as extensive as I proposed around 1990; IBRD: NGOs more influential than debtor countries in bringing about change (v. Gautam, Madhur (2003) Debt Relief for the Poorest, An OED Review of the HIPC Initiative, IBRD) TRANSPARENCY already exists  R eduction of Multilateral D ebts Meanwhile done, though undue preference persists

STILL MISSING, THOUGH –  RULE OF LAW ALL  BEST INTEREST OF CREDITORS (FAIRNESS to ALL CREDITORS) & FAIRNESS to DEBTORS IMPARTIALITY Very foundation of Rule of Law is IMPARTIALITY : ONE MUST NOT be judge in one’s own cause If one group of creditors IS party and judge easily avoidable and unfair damage to other creditors AND debtors Especially so IF, WHEN, and AS undue preference is enforced illegally in favour of creditors with no rights to be preferred or whose statutes even subordinate their claims [NOT best interest of bona fide creditors but illegally & unfairly harming them!]

Hold-out Creditors Criticism barks up the wrong tree: fundamental difference between private creditors subject to laws and official creditors making them and obliged to defend decent legal standards Paris Club has violated other creditors’ basic rights, whose claims remain perfectly valid and enforceable and who have not even been heard. It forces debtors to do so, simultaneously denying them any protection if sued in a Paris-Club-country “Comparable treatment” economically in essence a TAKING as prohibited by the 5 th Amendment of the US Constitution: a) private property subject to unbridled, uncompensated qualification by government b) no just compensation c) even most basic rights denied, such as defending one’s interest

Sovereignty § 904, Chapter 9, Title 11 USC (“Limitation on Jurisdiction and Powers of Court”) “Notwithstanding any power of the court, unless the debtor consents or the plan so provides, the court may not, by any stay, order, or decree, in the case or otherwise, interfere with - (1) any of the political and governmental powers of the debtor (2) any of the property or revenues of the debtor; or (3) the debtor's use or enjoyment of any income-producing property.” §943(b)(6): regulatory or electoral approvals to be obtained IF/WHERE necessary under nonbankruptcy law

Thank you Merci Gracias СПAСИБО 謝 Kunibert Raffer © K. Raffer