From developed to developing countries alike, the debt crisis affects us all. Taking aim at this important topic and how to address it globally, the UN General Assembly’s Second Committee, which focuses on economic and financial affairs, convened a special meeting together with the Economic and Social Council (ECOSOC) at UN headquarters earlier in October.

“The challenge of preventing and managing sovereign debt crises has taken on a new urgency in the wake of the recent global financial crisis,” said the Chair of the Second Committee Sebastiano Cardi as he opened the meeting. “The problem of excessive sovereign debt is a global phenomenon which affects international economic, political and financial stability,” he continued.

“The problem of excessive sovereign debt is a global phenomenon which affects international economic, political and financial stability”

Sebastiano Cardi
Chair of the Second Committee

Addressing lessons learned from the debt crises and the ongoing work on sovereign debt restructuring and debt resolution mechanisms was in focus for the event on 14 October, co-chaired by Second Committee Chair Sebastiano Cardi and ECOSOC President Martin Sajdik. Tackling these issues is something which the General Assembly has also called for in its resolution from last December and Ambassador Cardi noted that the Second Committee and ECOSOC are well placed to contribute.

“Inclusive, transparent and factual discussions amongst all stakeholders on this critical issue are paramount to arrive at an effective solution and foster inclusive economic growth and development,” Ambassador Cardi said, as he underscored the importance of finding an effective and long-term solution to sovereign debt problems worldwide.

Ambassador Sajdik also took the floor describing how the problem of excessive sovereign debt has now become a global phenomenon. “To achieve sustainable financing for development, we need to promote responsible borrowing and lending and debt management policies,” he said. “The international community also needs to work towards ensuring sufficient, speedy, predictable solutions to debt distress and ensure fair burden sharing between debtors and creditors and inter-creditor equity.”

Moderated by Alexander Trepelkov, Director of UN DESA’s Financing for Development Office (FfDO) and Richard Kozul-Wright, Director of UNCTAD’s Division on Globalization and Development Strategies, the event featured speakers including Paulo Nogueira Batista, Excecutive Director for Northern South America at the IMF; Anna Gelpern, Professor at Georgetown University; Ms. Yuefen Li, Head of the Debt and Development Finance Branch in UNCTAD’s  Division on Globalization and Development Strategies; Antonio De Lecea, Principal Advisor for Economic and Financial Affairs at the EU Delegation to the US;  Reza Baqir, Chief of the Debt Policies Division, Strategy, Policy and Review Department at the IMF, and Benu Schneider, Senior Economic Affairs Officer also from FfDO.

“To achieve sustainable financing for development, we need to promote responsible borrowing and lending and debt management policies”

Martin Sajdik
ECOSOC President

In the first panel, panellists discussed their experiences with policy responses to debt crises and how they affected future debt restructuring. Mr. De Lecea of the EU stated that the financial crisis had created a “perfect storm” prompting crisis management and institutional reform within the EU. He also said that the EU “had to repair the ship in the middle of the storm”, stressing the importance to reduce the reliance on credit rating agencies and to bear in mind the financial stability risks posed by restructuring, and not just the legal feasibility.

Ms. Gelpern argued that the UN has an agenda setting power that can bring the issue to the forefront of discussions. She also suggested that a repository of restructuring experience can be advanced by the UN. Mr. Batista argued that a UN body should take a lead on work with IMF technical input because governance problems and political imbalances mean that the IMF cannot lead.

The second panel discussed ongoing work on sovereign debt restructuring and debt resolution mechanisms. According to Ms. Li of UNCTAD, the topic and timing of the meeting could not be better, with an increasing number of least developed countries entering the bond market on the one hand, and the Argentina litigation case on the other. The international community’s aspirations for efficient, timely and fair debt restructuring must be met, and certain gaps must be filled Ms. Li stated.

Mr. Baqir focused on the work of the IMF in the field to improve collective action clauses and bond contracts and how their work was guided by the decions of their Executive board to work on a market-based approach. Ms. Schneider who leads a UN DESA project that aims to foster mutual understanding among stakeholders on sovereign debt restructuring, explained that there is a fragmented system for restructuring currently and that in the existing architecture there is no legal basis to prevent holdouts and litigation. She identified options for improving the architecture for sovereign debt restructuring.