ipg 1 /2008
116 Bernhard / Kellermann, Debt Restructuring
Fragile Global Debt Situation
Sovereign debts and debt crises have been a major topic for international
policy-makers for quite some time. This policy issue came to the fore with
the debt crisis in Latin America in the 1980s; it was reinforced during the
Asian crisis in the late 1990s and put on the official agenda after some
spectacular sovereign defaults, such as the Argentina crisis at the begin-
ning of the twenty-first century. In the wake of the Argentina crisis there
was considerable pressure to install some kind of formal mechanism for
dealing with sovereign defaults. But corresponding regulatory innova-
tions remained weak due to opposition from the us administration, pow-
erful financial market actors, and emerging market representatives.
Today, the global credit system is again in a state of instability, al-
though the situation is somewhat different from the circumstances ten
years ago. Current instability is mainly associated with the credit crisis
following the »subprime shockwave« on the us housing market. Other
critical factors are large global imbalances between capital exporters and
importers and possible spillover effects of the credit crunch on emerging
markets, in particular because emerging markets are to some extent facing
different financing situations (imf 2007): some emerging market coun-
tries have been able to cut back external sovereign debt as a consequence
of rising oil revenues, while others have increasingly converted external
debt into domestic debt denominated in local currency, making them less
vulnerable to external shocks. In any case, neither strategy is »bulletproof«
and sovereign debt crises – not only, but above all in emerging markets –
are still possible.
While this is well known, there is still no international consensus on
how to establish an orderly and transparent restructuring mechanism. But
systemic proneness to debt crises shows that a solution is urgently re-
quired. The difficult ques