Richard H. Clarida
I would like to begin by offering some comments on the progress that has been made over the last year or so on the sovereign debt restructuring issue. In the view of the US Treasury, the agreement reached on April 20, 2002, on the G7 Action Plan represents a useful step forward. To review, the G7 agreed to work with emerging market countries and creditors to incorporate standardised contingency clauses into debt contracts. It was envisioned that these would include a majority action clause, an engagement clause, and would specify a process by which a rescheduling or restructuring would be initiated. The G7 pledged to work with the IMF to provide incentives for the adoption of these clauses. The Action plan also pledged to limit official sector lending to normal levels, except when circumstances justify. Limiting official lending was seen as an essential part of the plan. The Action Plan also pledged the G7 to work with the IMF to clarify its lending into arrears policy.
Importantly, the US Treasury and the rest of the G7 support further work by the IMF along the lines outlined by Anne Krueger - the "statutory approach". However, it is recognised that since the requirements of the statutory approach would take time to implement, this work should proceed in parallel with the contract based approach and that the two approaches are complements not substitutes.
Since the announcement of the Action Plan, large institutional investors, who in the past were at most lukewarm to proposed changes in the status quo, have in recent months been directing their efforts at achieving a consensus on the principles and framework to develop the contractual clause approach. A number of these investors now endorse the inclusion into bond contracts of majority action clauses, under certain conditions. These investor groups would not favour any aggregation of claims across bond issues, and they would hope to exclude from the voting on amendments to bond contracts any entities controlled by the sovereign. With regards to engagement, investor groups tend to support engagement as an ongoing process and tend to resist specific ex ante delegation of powers, other than the power to negotiate, to the chosen representative of the bond holders.
Investor groups are for the most part not in favour of legally binding