Robert Kahn 1
Chapter 9, by Haldane et al., is a very good one. What I want to do, though, is touch on a few of the ideas and key assumptions in the chapter, which I think take you to policy conclusions. In doing so, I will try to give a private sector perspective with reference to some of the specific deals that have gone on.
One thing I appreciated in this chapter was the effort to be fair to the SDRM. We know the Bank of England's perspective on these issues. They have a preference as a matter of policy for collective action clauses and more disciplined rules of engagement in dealing with the resolution of crises. Events subsequent to the drafting of the chapter have shown policy to have moved in their preferred direction. Prospects for an imminent adoption of the SDRM have receded, while collective action clauses have been introduced with little apparent cost to the issuer. Bank of England staff can rightly feel gratified. But I would not "write-off" the SDRM forever - policy initiatives can and often do return to the stage after a period of germination. Consequently, the effort by the authors to be balanced and recognise the potential roles for the SDRM at the insolvency stage gives the chapter enduring value.
The chapter is also actually rather orthodox in that it highlights the continued role for the IMF as a supporter of reform and adjustment effort. Recent years have seen a variety of criticisms of the IMF's role, both from the left and right, but the authors see no sensible alternative. The chapter, nonetheless, highlights potential incremental areas for improvement in IMF surveillance. I agree.
What I liked best about the chapter is the focus on the "grey-zone". Most of the cases, certainly the most troubling ones, are those where the solvency and liquidity issues are unresolved and where the interaction of those two forces is important. Even though I think Turkey could work its way out of its debt problems, if they implement and sustain the right economic policies, others will disagree. Certainly, in a period of substantial political and regional uncertainty, it will be difficult to convince the sceptics. That difference of view is a very important part of the dynamics of the market. Indeed, ultimately, it may affect the policy actions of the Turkish government and the response of investors.