Associations Propose Market-Based Approach to Sovereign Debt Restructuring

Leading associations representing the world’s largest financial services firms have delivered a discussion paper to Finance Ministers and Central Bank Governors of the Group of 10 leading industrial countries underscoring the ‘inherent problems’ in the IMF’s proposed Sovereign Debt Restructuring Mechanism (‘SDRM’). They stressed that a market-based approach to strengthening crisis management holds the only promise for success. The associations said they share the G10’s concerns for the need to establish a more effective approach to crisis management, but reiterated that private investors accept responsibility for their investment and credit decisions and do not look to any official organizations to cover potential losses. The paper contains detailed arguments against the SDRM, while highlighting a market-based alternative approach that makes the SDRM unnecessary. This approach, which includes the development of collective action clauses (CACs) for inclusion in bond documents, would operate in the context of an international Code of Conduct for crisis management to be applied on a case-by-case basis and which would help to guide the behavior of all parties involved.

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