Main points of Russian position on multilateral sovereign debt restructuring mechanism
1. Russia stands for the development of a comprehensive mechanism for sovereign debt restructuring within the framework of the three main approaches.
- The framework should be used for all borrowers regardless of the group of economies to which they belong according to the World Bank’s classification.
- The mechanism that is being established that was originally born from the discussions about the restructuring of Eurobond indebtedness should be also aimed at the outlining of the principles that govern the restructuring of the sovereign debt of other categories.
- We believe that such mechanism should contain the recommendations and commitments related not only to the organization of the arrangement of restructuring sovereign debt, but also the recommendations and obligations associated with the public debt borrowing process. Substantial share of responsibility also lies with the lenders themselves, who are involved in the formation of a comprehensive approach to the debt problems of sovereign borrowers.
2. Within the framework of the said mechanism it is necessary to set the balance of interests of the sovereign debtor and its creditors. The procedure, conditions, procedures and principles of sovereign debt restructuring process should equally balance the interests of the parties and create conditions for maintaining stability of the international financial system.
3. We consider it necessary to support the proposals and initiatives to limit or eliminate the ability to block an agreement on the terms of the restructuring of public debt between the debtor and its creditors. We believe it is possible to set in the International Convention for sovereign debt restructuring the provisions on using creditor’s collective action clauses in loan documentation in the wording, which is currently being offered by the International Capital Market Association (ICMA) and is supported by the IMF. This applies also to the so-called «Pari Passu» clause.
It is worth noting that a number of important changes have been introduced in the conditions of the latest issues of Russian sovereign Eurobonds in 2013, they should significantly reduce the potential legal risks for Russia.
In particular, Russia has implemented changes in the «Pari Passu» clause, limiting its interpretation to the law, rather than to the financial aspect. Moreover, Russia has become one of the first sovereigns, not members of the European Union, whose documentation reflects the provisions of the European Stability Mechanism (ESM), enacted in 2012, in terms of so-called Collective Action Clauses.
4. We share the view that the exclusive use of "contractual" approach does not effectively carry out restructuring of sovereign debt. At the same time, we understand that "legislative" approach in one way or another involves the delegation of the national economic sovereignty to supranational institutions. For this reason, we see the basis of sovereign debt restructuring mechanism mostly as a set of rules and principles that should guide each of the parties at all stages of this complex process. And the «Rules Based Approach» corresponds to this target.
5. The above-mentioned rules and principles at some point should be considered as "legally binding" for all stakeholders. I would like to emphasize the crucial importance of determining that point, because, as noted above, the preservation of the sovereignty in decision-making on debt restructuring has been and remains an essential prerequisite for the broad support of the framework agreement.
6. It is necessary to include into the provisions of the Framework Agreement an Article on the obligations of the states-parties not to impose politically-motivated restrictions to prevent an access of sovereign borrowers to the international debt capital markets. Such restrictions prevent the carrying out of operations on refinancing of debt and under certain circumstances may push the debtor country to conduct economically groundless sovereign debt restructuring, compromising both their own interests and the interests of its creditors.
7. Particular attention should be paid to reaching the agreement on the procedure of activation mechanism for sovereign debt restructuring process. We do not support the idea that such a decision should be left only to the debtor, as in this case, the risk of aggressive borrowing policies increases dramatically. Neither we support the “de facto” exclusive right of IMF to start the process. We believe that the mission of the Fund shall be to develop solutions to the debt problems of the struggling sovereign debtor, leaving the right to the final choice of schemes of debt relief for the debtor and its creditors.
The implementation of these initiatives, in our view, will ensure a comprehensive approach to the establishment of an effective mechanism for sovereign debt restructuring.
We are generally supportive of the approach outlined in materials circulated under the title «Towards a multilateral debt workout process» as this largely reflecting the approach that we share.
