June 09, 2016

Where are the citizens, the taxpayers, in all the discussions about sovereign debt restructuring?

Sir, I refer to Robin Wigglesworth’s and Elaine Moore’s interesting discussion about sovereign debt restructuring. "FT Big Read. Sovereign Debt." May 9.

In it they state: “The International Monetary Fund and finance industry bodies have spent the past few years overhauling aspects of the sovereign bankruptcy architecture….

In April 2013, the US Treasury orchestrated an informal group of creditors, bankers, lawyers and governments to find a solution to the problem. Over the course of a year the ‘Sovereign Debt Roundtable’ meetings were attended by representatives from multilateral institutions, major governments and the London-based International Capital Markets Association.”

And I have to ask: Should not citizens be present there in order to make sure they are not forced to pay what could be considered odious borrowings by the governments or odious credits given by the lenders.

I know that all the costs or additional risks for creditors that could result from any Sovereign Debt Restructuring Mechanism will be reflected, one way or another, sooner or later, in the interest rates of the loans. Even so I am all for a SDRM as it represents a golden opportunity to reduce the risks that we citizens, we taxpayers, are taken to the cleaners, by any arrangements between governments and their bankers.

For instance, it would be great if governments, who cannot earn the right to be trusted by the markets sufficiently, and therefore had to accept risk premiums over x%, had no access to markets, otherwise being willing to accept, on us citizens’ behalf, interest rates in line with payday loans.

And what if the feeling you have is that those collecting payday high interests are some creditors who are "very" close to the government?

Equally a creditor that knowingly lends to a government that is not functioning, as it should, that is for instance violating human rights, should not see his debt classified for repayment in the same conditions than more bona fide lender.

Sir, let me give an example from Venezuela. Would you like your children have to repay a foreign debt contracted, at high interest rates, only because a government, even though there is lack of food and medicines, sells petrol at less than 2 US$ cents per liter?

Whenever we sit down to work out unsustainable debt… I would like that debt qualified.

PS. And there’s more and more and more on this issue.

@PerKurowski ©