1
Sovereign Bankruptcy a piece of IFA still
missing?Marcus Millers comments

• Nice paper elegant account of Ideal Bankruptcy
  Arrangements followed by a Brief History of
  actual practice
• but maybe some bits are missing!
• Ill briefly summarise key contributions
• then mention points to consider in any revision
  for the volume.

2
A Brief History of Debt Restructuring

• Low Income Countries
• Convincing critique of the Paris-Club-plus-
  IMF-program approach too little write- down, too
  late, and badly focussed.
• Without a fresh start, debt postponement for
  insolvent countries is like helping a drowning
  person without pulling them out of the water
  can lead to Slow Motion Submersion in debt!

3
Whats missing?

• In Brookings Papers (2002?) Jeffrey Sachs
  offered a nice model of endogenous growth to
  underline the need for a fresh start.
• Like Ravi Kanbur, Jeff emphasized the need to
  focus on end results (e.g. MDGs) rather than on
  intermediate targets for fiscal and monetary
  policy.
• Show how things have changed/improved since
  then-- with big write-downs and focus on MDGs
  under HIPC and MDRI

4
Market Access Countries

• Neat account of shift from Bank Loans to Bonds
  after the LA debt crisis of the 1980s.
• Drowning in debt analysis is used to suggest
  that the Baker plan mistook the situation as a
  Liquidity Crisis and led to more debt piling up
  until the Brady plan led to write down.
• What about Merlo and Wilson idea that prompt
  write down would have destroyed the equity of NY
  Banks so there was a strategic delay to allow
  the NY Banks to provision for write down?

5
The SDRM saga

• Authors tell the tale how SDRM was dropped in
  favour of CACs
• Do not discuss the Lesser Evil theory that SDRM
  was a credible threat
• to get IIF to sign up to CACS and codes as they
  have done.

6
What about Russia and Argentina?

• Creditors are getting paid for the risk of
  default but the actual loss from defaults is
  significantly less than what is priced into the
  market.
• (We are told that Moodys recovery proxy is wrong
  but the authors are too shy to give details of
  Shari Speigels alternative.)
• But the Table provided excludes Russia and
  Argentina, the two hefty write downs. Why?

7
Le defi Porzecanki

• Restructurings are close to NPV preserving ,
  give breathing space but no fresh start.
• What is authors reply to Porzecanskis
  challenge that after Argentina the problem is
  not rogue creditors but rogue debtors?
• Would it help to refer to the new political
  economy theory of sovereign debt penalties? It is
  the take-up of of debt by locals that provides a
  credible punishment for default local citizens
  who suffer can throw the government out of
  office!
• Ref IDB Living with Debt (-and dying with
  default!)