Global Policy Forum

The Sovereign Debt Restructuring Mechanism (SDRM)

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Caritas Internationalis
International Cooperation for Development and Solidarity (CIDSE)
April 2003
Summary

Is there an alternative to the proposed sovereign debt restructuring mechanism?
This joint CIDSE and Caritas Internationalis background paper on debt restructuring gives a critical analysis of the most recent proposals (April 2003) from the IMF for a Sovereign debt restructuring mechanism (SDRM).

Among the key criticisms are:

  • the proposals would involve a cumbersome decision-making procedure that retains some of the inequities of existing processes. For example, the SDRM primarily addresses private sector debt and fails to deal with multilateral debt
  • bilateral creditors are (so far) exempted from SDRM treatment
  • The exempt status of the International Monetary Fund (IMF) would be reinforced by giving IMF management a prominent role in choosing the members of the debt resolution forum
  • debtors might end up subject to additional IMF

    CIDSE and Caritas Internationalis demand that the role of the IMF should be restricted to that of a lender acting as a consultant on behalf of all or some creditors, if so they wish. The IMF, they argue, cannot act in any "independent" role because of its creditor function.

    The report also criticises the proposed mechanism for not considering poverty reduction as a criterion for the amount of debt reduction a country would receive, nor taking steps to ensure that poor people benefit from any negotiated solution. Furthermore, they argue, the IMF proposal does not touch important issues such as the participation of stakeholders, transparency or the analytical framework used to judge debt sustainability.

    As an alternative CIDSE and Caritas Internationalis propose a Fair and Transparent Arbitration Process (FTAP). This is envisaged as a comprehensive mechanism that would be open to all countries and that would address private as well as bilateral and multilateral debts. The FTAP proposal argues that a truly comprehensive debt restructuring process must be driven by an independent institution, such as an international arbitration panel. This panel – whose members are chosen by the debtor and the creditors alike – would determine debt sustainability thresholds consistent with internationally agreed poverty reduction objectives such as the Millennium Development Goals. This judgment would aim to bring down debts to sustainable levels where analyses of sustainability take into account first and foremost the financing of poverty reduction programmes. Furthermore, CIDSE/CI propose that creditors and the debtor country must agree on safeguards to redirect debt reduction savings to these programmes.

    More Information on Debt Relief
    More Information on the International Monetary Fund

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    FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.