Many participants stressed that the speed and effectiveness of debt restructuring processes could be significantly improved by building a sense of trust and shared responsibility between borrowers and creditors. This could be achieved by working on four fronts.
Borrowers’ responsibilities
Borrowers can strive to develop a relationship of trust and confidence with their creditors through regular communication and the establishment of effective regulatory and institutional frameworks to deal with debt. Capacity constraints in debt management offices should be addressed as far as possible. Relatedly, greater transparency as to the composition of the debt profile would enhance creditors’ confidence. One possibility in this regard would be to adopt transparency clauses, on the model of the one employed in Ecuador’s 2020 restructuring, foreseeing disclosure obligations and qualifying the lack of publication of the relevant documentation as a default event. Furthermore, borrowers should aim to anticipate the resolution of debt issues, including through the establishment of appropriate internal accountability mechanisms, and promptly engage with the creditors concerned. Finally, debt sustainability and resilience to shocks could be improved by the adoption of clauses requiring borrowing countries to meet certain economic targets, for example predetermined debt/GDP ratios, before issuing new debt.
Creditors’ responsibilities
Creditors should endeavour to share information with borrowers and assist in the development of borrowing countries’ debt management capacity in various ways, including through financial contributions and pro bono activities like seconding their own personnel. IFIs could consider providing salary support for the personnel of borrowers’ debt management offices in order to help build and maintain capacity. University faculties should be used to provide both research support to governments in debt management and negotiations and to provide specialised training. Training opportunities could be also offered by other organizations such as the Emerging Markets Traders Association (EMTA). Finally, to the extent feasible creditors could seek ways to engage with credit rating agencies on debt policy issues to try and mitigate the risk that credit rating actions might penalise borrowing countries and discourage them from promptly addressing vulnerabilities, as has been the case, for instance, with the DSSI.
Improve the response to external shocks
External shocks such as climate events, variations in commodity prices or shifts in the monetary policies of advanced economies can have a significant impact on the debt sustainability of emerging market economies. While climate events can be partially dealt with by contractual instruments such as disaster clauses, anticipating payment standstills or debt reprofiling at the occurrence of certain categories of events, commodity prices and spill-over effects of external monetary policy shifts are more challenging. There is a need for a broader stakeholder engagement to ensure that the burden of these shocks is shared more equitably.
Enhance the voice and agency of borrowing countries
There is the need to increase the voice of borrowers throughout debt crisis resolution processes. In this regard, there might be scope for regional organisations, particularly on the African continent, to enhance the voice and agency of member countries in global governance. Relatedly, there should be greater accountability of IFIs, and especially the IMF, vis-à-vis borrowing countries.
Enhance the voice and agency of private creditors
There was a recognition of the need to increase the voice of private creditors throughout debt crisis resolution processes with an aim to improve both the process and outcomes. Additionally, providing private creditors a seat at the table can also contribute to the creation of innovative approaches to unlocking availability of much needed new private sector capital to borrowing countries. This can be achieved through the creation of a new entity, specifically designed to represent private lenders in ongoing monitoring, proactive dialogue as well as in restructuring processes.