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Briefly introduces the new debt restructuring

Author: LiRenZhenˇˇZhangˇˇHong From: www.yourpaper.net Posted: 2009-06-01 23:01:40 Read:
papers Keywords: national debt, national debt restructuring collective actions Terms family debt restructuring mechanism
National Debt Restructuring refers between the debtor country and its creditors on the country's existing debt payment made to reschedule. The national debt restructuring is currently facing difficulties in collective action, minority creditors uncooperative, the creditor's treatment is not clear, the new financing deficiencies, as well as the reorganization proceedings opaque. Two programs of the international community to address these challenges and to promote the restructuring of the national debt, the contract method of statutory method. Contract method is primarily applicable to the restructuring of the national debt, and its core is the introduction of collective action clauses in national bond contracts; core of the statutory method by modifying the existing IMF agreements or the conclusion of a new international treaty, the establishment of a national debt restructuring the legal system. Both contribute to the national debt restructuring, the to defuse national debt crisis, but there are also significant differences: the statutory method in scope, covering the content, program effectiveness advantage, the contract more feasible at this stage.

the significance of the national debt restructuring and the challenges facing

The national debt (Sovereign Debt), also known as sovereign debt, a country's government or its authorized agencies to borrow the name of the country to the credibility of the State to guarantee the repayment of debt. In modern society, the state in the form of loans or issuing bonds in the financial markets through the financing is not uncommon. However, when a country is unsustainable liabilities overweight, the situation is unusual. The early 1980s there was an outbreak of the international debt crisis that shocked the world; debt crisis has occurred from the mid-1990s began, Mexico, Russia, Brazil, Turkey and other countries; December 2001, Argentina announced a freeze on the repayment of its massive $ 132 billion external debt has become the largest in the history pour account country [1]. Practice shows that, when the debt crisis, the debtor countries are often unable to repay its maturing debt, had to suspend the reimbursement, which may cause significant damage to the country's economic and financial, and even political instability and social unrest. A country's debt crisis may spread to neighboring countries and regions, the impact of these countries and the region's economic and financial health development, thus threatening the stability of the entire international financial system.
The so-called National Debt Restructuring (Sovereign Debt Restructuring), refers to between the debtor country and its creditors in relation to the country's existing debt payment made to reschedule. This concept comes from the national law on corporate restructuring. In national law, corporate restructuring, re-regulation of the survival value of the company, in order to preserve the value of the assets of the company, to maximize the benefit of creditors. Similarly, the purpose of the reorganization of the national debt is to make the insolvent countries temporarily lift or reduce the debt service burden, to gain time for its economic recovery and development, and ultimately restore the ability to pay back the capital market, so as to ensure that the country and the whole the stability of the international financial system. When a country's debt reached unsustainable levels of debt restructuring, has important implications for the debtor countries and private creditors, the major creditor countries and the International Monetary Fund (IMF) and other official financial institutions.
First, the debtor countries by debt restructuring, can ease the financial pressure, and even debt relief, thereby contributing to the rapid recovery of the ability to pay, economic recovery and development, as well as to restore access to international capital markets. Second, the public-private creditors to participate in debt restructuring, bear the responsibility for debt relief, in fact, is also to bear their own investment risk, thus helping to reduce the risk of moral hazard, strengthen market constraints, and more secure repayment of the restructured debt to creditors the most favorable. Again, for official international financial institutions, the debtor countries and creditors independent negotiations for debt relief, can reduce the need for international relief funds, and international relief funds to more effective use.
In theory, the national debt restructuring in line with the common interests of debtors and creditors, but in practice, the state debt restructuring are often very complex, involving many difficult issues. This was reflected in the following aspects.

(a) of the collective action problems
collective action problem is the majority of creditors unified coordinated action difficult. Since the 1990s, the bond financing gradually replace bank loans as the main form of financing for emerging market countries. Expand funding sources for these countries, but also to the debt restructuring has brought new problems. This is because bond investors are usually from different countries and regions, and its large number and relatively dispersed, some bonds or bearer, it is difficult to confirm the identity of the creditor. Moreover, the bondholders often do not have a representative body, it is difficult to carry out a unified and coordinated. In particular, some bondholders to buy government bonds from the secondary market on the cheap, and its main purpose of short-term profit, when they believe a debt restructuring is not conducive to maximize their interests, they may be reluctant to participate in the debt restructuring, which lead to the difficulties of collective action.

(b) a small number of substandard Author
The minority creditors uncooperative is a major obstacle to the restructuring of the national debt. In the case of debtor countries there are many different creditors, due to the different interests of the creditors of the same, there will always be a small number of creditors do not want to participate in the reorganization, and other ways to obtain more favorable solvency. These creditors are often referred to as "substandard" (Holdouts) or "free riders" (Free-riders). The some even noncooperators through litigation to force the debtor to repay the debt ˘Ů. Does not exist in the current national debt restructuring framework of an effective system can constrain the behavior of the irregularities of the debtor countries also can not force these people to cooperate. It is the presence of these irregularities of other creditors will feel unfairly ˘Ú The thus affecting other creditors to participate in the decision-making of the reorganization. Turn, the debtor countries out of most creditors will support the restructuring of the concerns, and may postpone initiate reorganization proceedings, leading to debt problems worsen, causing greater economic and social costs.

(c) of treatment among creditors
National bankruptcy reorganization system, in general, the clear provisions of the debt settlement order, these provisions allow creditors to know exactly what the status of their own in which debt settlement, and usually this status has legal protection, and thus You do not have to worry about the debtor will give priority to the repayment of other creditors. However, for the country, not a uniform mandatory rules of the liquidation order, it is impossible which court or which law can force it to comply with this rule. Formed National Debt Restructuring practice some unwritten practice as similar bond holders to be treated equally, multilateral creditors priority claim, however, between the domestic and foreign creditors, private creditors and the official creditors between the treatment may still exist. Liquidation order without a uniform rule, creditors out of concerns of fairness, the beginning of the restructuring negotiations need to on the relative treatment of different creditor groups to negotiate before they agree to renegotiate the terms of the restructuring. This will obviously delay the process of restructuring negotiations, hinder the restructuring agreement reached as soon as possible.

(d) to provide new financing problem
In general, the creditors do not want to debtor countries in arrears of debt can also obtain new financing, addition worried that the new financing will increase the overall value of the debt, but also because of the implementation of capital market exclusion of the debtor countries, is itself of its breach of contract one kind of significant sanctions. However, if the debtor countries do not get any new financing, to revive the economy and restore the ability to repay the hope would be smaller, will be even more unfavorable to creditors; if the debtor countries to obtain new financing, can at least make it first to repay those immediately necessary maturity debt, might give it a respite to think of ways to restore the ability to pay a greater return on the value of claims of existing creditors. Provide new financing to the debtor countries has become the National Debt Restructuring another major obstacle. Although the debtor countries to obtain new financing to maintain the operation of all creditors, but a single creditor would prefer to debtor countries to obtain new financing to repay the debt, rather than increasing the overall value of the debt; Although the new financing only to all creditors the interests, but each creditor would prefer others rather than to provide new funding. This is not just because of the loss of confidence in the debtor's ability to pay, but also because of the national debt restructuring framework no new financing with the relative priority of the specified ˘Ű.
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