Q and A with UNCTAD’s Richard Kozul-Wright on a new Roadmap and Guide for debt restructurings

Why did the UNCTAD develop this Roadmap and Guide and why now?

We have a long history of thinking about this issue, starting with the previous crisis in Latin America in the 1980s. Five to six years ago a group of experts, working with UNCTAD staff, began fashioning a set of principles for responsible sovereign borrowing and lending to try to encourage people to behave differently. That was well-received and the natural next step was to adapt that approach to a more formal framework for resolving debt problems (which we had been advocating since the mid-80s). It is principles-based and it has clear steps for how a debt workout process could be conducted, including identifying the institutional gaps that need to be filled. The weaknesses of the current system have been highlighted by recent high-profile cases in Greece, Argentina, etc, but our worries are as much with potential future financial shocks to developing countries. This Roadmap and Guide offers a more reasonable process for any country facing intractable difficulties related to sovereign debt.

How would the UNCTAD proposal address the vulture funds problem? Can a solution along your proposal’s lines avoid future lawsuits?

We believe that adopting these principles and institutionalising them could prevent, or at least diminish, the rent seeking behaviour exhibited by vulture funds none of whom can, for example, be said to be acting in good faith. But this is not the only problem we are seeking to address through a principles-based approach. As was mentioned by the Greek MEP Stelios Kouloglou during the recent Eurodad event, if you applied these principles to the Greek situation following the financial crisis, the challenge facing Greek society would look very different today.

UNCTAD’s Richard Kozul-Wright addressing the Eurodad-UN event at the European Parliament on the UN’s work towards a new multilateral framework for Sovereign Debt Restructurings

Debt crises outdo development progress and lead to humanitarian crises, and it is often the poorest and most vulnerable who suffer most. What solution is there to overcome this?

Hitting the poor is a consequence of these crises. They are the collateral damage due to policies of austerity, which are usually imposed on country`s facing a debt crisis, and are guaranteed to hit the poorest. They are not always the first to feel the effects, but they often take the brunt. Governments must not be forced into adjusting through austerity which as we know doesn’t solve the problem anyway.

How do you want debtor countries and creditors to use the Guide and Roadmap?

Wherever and whenever they can use it – it is out there now. Either in total, or in part, this roadmap is already useful to ongoing restructuring processes. And it is not just for debtors and creditors, it is also useful for legal scholars and practitioners, CSOs and other stakeholders. It should be mined by all of these individuals and bodies.

Which other steps are needed or desired to implement the UNCTAD proposal?

A lot will now depend on what happens in the process set up by the UN ad hoc committee. It is shaping the debate.

Can you explain what the role of a Debt Workout institutions would be?

This is best seen as the end of the road. Following the principles does not rely on having an institution in place, but having one would be a natural end point. It would be an institution for information gathering, arbitration, and for managing the required steps more effectively. We have made no claims as to where it should sit – under the UN, an independent body within the IMF or a stand-alone authority. But it should have its own rules and legitimacy.

We don’t pretend we have it all worked out, but the gap will need to be addressed eventually.

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