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UN to Call for New Global Body to Help With Debt Relief

By

Alonso Soto

April 22, 2020 - Reuters

• New institution to arrange a debt payment pause for countries
• Argentina debt restructuring seen as a model for plan

The United Nations is calling for the creation of a global authority to help implement the temporary suspension of debt obligations from developing countries during the coronavirus pandemic.

The proposal will enable private creditors to join the debt payments pause and allow countries use resources to fight the new illness, said Stephanie Blankenburg, head of debt and development finance at UNCTAD, the UN’s trade and development agency.

“Concerned developing states have to come together to push for an international agreement to create an international debt authority,” Blankenburg said in a phone interview, adding that the UN will announce the plans on Thursday.

The authority should be initially established as an autonomous organization like the International Atomic Energy Agency was in the 1950s before it is recognized by the entire United Nations, Blankenburg said.

Argentina Example

“A global debt authority will put into place an immediate automatic temporary standstill for all developing countries that require it,” she said.
Argentina’s proposal for a three-year debt payment moratorium and steep cuts in interest rates should be taken as an example in future sovereign restructuring, Blankenburg said.

The South America country’s plan for over $40 billion in debt relief was initially rejected by creditor groups which claim the offer was below bondholders expectations.

No London Club

For years, debt reduction advocates have called for the creation of an international body to oversee sovereign debt restructuring, which are currently hashed out between bondholders and issuers or in courts.

Even though some private creditors plan to join the Group of 20 leading economies decision to delay debt servicing, a standstill on sovereign debt payments could be challenged in courts by some bondholders.

In the 1980s, indebted countries reworked their private debts with the London club, which grouped the world’s top commercial banks. The club, however, has lost relevance in the past decade as countries turn to commercial bonds instead of direct bank loans to finance their governments.

An IMF-backed Sovereign Debt Restructuring Mechanism had little traction with creditors and failed to take off in the early 2000s.