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Effective Debt Management - Avoiding Litigation

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					Commonwealth HIPC Ministerial Forum



 Effective Debt Management: Avoiding Litigation


          Center for Global Development
              Washington D.C., USA
                  April 12, 2007
    Background
   HIPC countries subject to litigation by commercial
    creditors (vulture funds)

       September 2004: Report published « Dealing with Sovereign Debt
        in Distress: some key financial and legal aspects »

       September 2006: Setting up of a HIPC Referral Service (Legal
        Clinic) by the Commonwealth Secretariat

       November 2006: First Workshop on Debt Negotiation & Re-
        negotiation – Kingston, Jamaica
Main recommendations of the Report
   Countries should, in the first instance, try to avoid
    litigation

       « Weak institutional capacity, both in material and
        human factors, is a major stumbling block for
        successfully dealing with sovereign debt in
        distress »
       « Having a timely, clear and complete picture of a
        country’s debt is a pre-condition for achieving debt
        sustainability »
    Litigation
   The ComSec report referred to a particular
    type of litigation
   A wider definition would include other
    types of legal issues
          Re-structuring of loans/bonds
          Various types of court cases (guarantees; default
           by suppliers)
   The Loan Cycle
                      Determination of borrowing needs


                      Loan Negotiation and signing of
                      loan agreement




                      Fulfilling conditions precedent
                                                         Where things usually
Other Developments    Loan now effective                      go wrong
Debt Restructuring:
Reschedule
Refinance
                      End of grace period
Buy back
Prepay
Swap                  Instrument matures and is
                      paid off
Effective debt management
   Over the years, there has been greater
    consensus on what “effective debt
    management” entails
     Effective debt management
   Legal & institutional structure
             Clear objectives for debt management
             Clear roles & responsibilities among institutions
             A framework for policy making


   A professional cadre of debt managers
             Debt & international finance
             Economists
             Legal – especially legal aspects of finance
             IT specialists

   Adequate information systems and procedures in place
             Debt recording and management system (such as CS-DRMS 2000+)
             Coverage (external (public and publicly guaranteed); domestic; private sector; short-term)
             Data quality
             Publish debt statistics
             Linkages with Integrated Financial Management Systems (IFMIS)

   Need for an operational debt management strategy
             Continuously monitor prevailing national/international macro-economic conditions
             On-going dialogue with macro-economic policy makers, other development partners, the civil society
             Need to analyze data (level, composition etc.) and take corrective action
             Publish and implement a debt management strategy
How can ComSec help?
                       CS-DRMS
                     Development
                     Maintenance
                      Installation
                    Hot Line Support
                    Documentation

                 Debt Data Compilation,
                 Standards and Quality
                         Training
            Interpretation of loans agreements
                     Use of CS-DRMS
       Debt management strategies and techniques
                      Report writing

                    Advisory Services
       Review of legal and institutional framework
                Advice on debt strategies
        Provision of short and long term experts
                 Newsletter & Web site
    If litigation cannot be avoided…
   It is important to have:
          Sound data and complete documentation
          Trained debt managers & lawyers
          A knowledge of applicable law & relevant
           precedents
   The HIPC Referral Service can help…
                       Thank You !



Please visit our web site at: www.csdrms.org



        Any questions about this presentation can be addressed to:
  José Maurel, Debt Management Section, SASD, Commonwealth Secretariat
                       j.maurel@commonwealth.int

				
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