The Coming Emerging Market Debt Squeeze

B. Debt workouts for middle income countries Tables

The middle income countries should receive substantial debt relief.

Recent debt strategies in the cases of middle income countries

For the lower middle income countries, the Paris Club also allowed some debt reductions through debt conversions.

There are also middle income, high debt developing countries that need a reprieve from the debt burden they face.

(d) Assess the debt sustainability of middle income countries in Africa and elsewhere and extend appropriate debt relief, if needed

Debt servicing problems of middle income countries should continue to be addressed effectively.

quot 18. Notes with concern the continuing burden of debt and debt service obligations of middle income developing countries and, in this regard, encourages all creditors to continue their initiatives and efforts to address the debt problems of middle income developing countries

How can the resolution of debt sustainability problems facing middle income countries be facilitated?

The question of debt sustainability analysis is also key to the resolution of the debt crisis of other low and middle income countries.

For many heavily indebted non HIPC and middle income countries, debt sustainability will require significantly more debt reduction than has yet been proposed.

2. Debt service problems of middle and low income countries High social cost incurred in the efforts to fulfil commitments on debt servicing

Many low and middle income countries had experienced greater difficulties in honouring their debt commitments.

2. External debt of five Asian and five Latin American middle income countries, 1996 1997

We urge debt relief to be broadened to cover both multilateral and bilateral debt for all low income African countries and urge substantial debt relief for middle income countries as well.

17. Recognizes the difficulties of highly indebted middle income developing countries and other highly indebted middle income countries in meeting their external debt and debt servicing obligations, and notes the serious situation in some of them in the context, inter alia, of significant liquidity constraints, which may require debt treatment, including, as appropriate, debt reduction measures

For many heavily indebted non HIPC and middle income countries, debt sustainability will require significantly more debt reduction or restructuring than has yet been proposed.

Of concern was the lack of progress in addressing the debt problem of middle income countries.

It also welcomed the reference to the need to consider debt relief or restructuring for those middle income countries that had an unsustainable level of debt.

16. Stresses the need to significantly address the debt problems of middle income developing countries, and in this regard stresses the importance of the Evian approach of the Paris Club as a practical means to address this issue, and notes that the current debt sustainability framework used to analyse the debt situation of middle income countries focuses mostly on medium term debt dynamics

By and large, experience supports this method. Indeed, the huge expansion in emerging market domestic debt issuance in recent years has helped reduce market tensions (though continuing reliance by corporates on foreign debt still leaves many countries vulnerable).

Despite recent initiatives in this area, debt remained the major obstacle to development in middle income countries.

Progress also needed to be made on extending external debt cancellation to low and middle income countries.

Fifteen middle income countries have reduced by 20 per cent their commercial bank debt of 213 billion.

And the market is prone to temporary fits of shared enthusiasm for emerging market debt, for Internet stocks, for residential mortgage backed securities, for Greek government debt. Traders need not wait to see when or whether the profits materialize.

The first phases of that treatment, from 1982 to 1988, relied on debt reschedulings and new liquidity support, together with a market menu of options, which allowed limited amounts of voluntary debt reductions through debt securitization at a discount, debt equity swaps and debt buy backs.

The Committee noted that a number of higher and middle income countries benefited from the debt burden adjustment.

Permanent debtor creditor dialogues, the provision of transparency, and information on emerging market debt would be ensured through the creation of a permanent international debt framework secretariat.

Although a number of middle income developing countries, especially in Latin America, appeared to have gotten a handle on their external debt situations, many low income countries and a number of lower middle income countries as well continued to face considerable debt servicing difficulties.

Accordingly, he called for increases in aid, debt relief, and deepening of preferential market arrangements to decrease poverty.

In 1989, the Brady Plan was announced with unprecedented official commitment, most particularly from the United States of America, Japan and the Bretton Woods institutions, to support debt reductions in line with debt prices on the secondary market.6 For many indebted countries, this market based approach allowed a reduction of external debt at a significant discount.

Furthermore, while debt relief for HIPC countries was welcome, the majority of the world's poor resided in other developing countries, many of which were middle income States also facing heavy debt burdens.

On the subject of debt, the United Nations is requested to support the efforts currently being made by the Commission of the African Union for a thorough review of debt, leading to debt cancellation for the heavily indebted poor countries and to debt reduction or cancellation for middle income indebted countries.

(f) To encourage exploring innovative mechanisms to comprehensively address the debt problems of developing countries, including middle income countries, and countries with economies in transition such mechanisms may include debt for sustainable development swaps, or multi creditor debt swap arrangements, as appropriate

(f) To encourage exploring innovative mechanisms to comprehensively address the debt problems of developing countries, including middle income countries, and countries with economies in transition such mechanisms may include debt for sustainable development swaps, or multi creditor debt swap arrangements, as appropriate

It was also in favour of debt reduction for middle income countries with obvious repayment problems and supported the Evian approach of the Paris Club under which countries not covered by the HIPC Initiative could obtain debt relief based on debt sustainability criteria.

This has occurred largely through buy backs supported by the World Bank s Debt Restructuring Facility and the IMF s Economic Structural Adjustment Facility for low income countries and through officially supported debt and debt service reduction programmes (Brady operations) for middle income countries.

A reformed United Nations system must, therefore, devise special mechanisms to reduce the debt burdens of low and middle income countries.

Accordingly, the Panel recommends a 100 per cent debt cancellation for all low income countries, including those not eligible for debt relief under the HIPC initiative, and significant relief for middle income countries.

What the market is saying is not that the economy has too much debt, but that it has too much private debt, which is why prices of corporate bonds are low and firms find financing expensive. The market is also saying clearly and repeatedly that the economy has too little public US government debt, which is why everyone wants to hold it.

Noting with concern that some highly indebted, middle income developing countries are facing serious difficulties in meeting their external debt servicing obligations,

We therefore urge the General Assembly to support debt relief for middle income countries whose economies have been devastated by natural catastrophes such as the tsunami and countries with high levels of poverty and debt.

(b) Debtor creditor dialogue to explore alternative market based approaches for dealing with debt service difficulties in order to avoid defaults

What about market discipline? Is the German government s willingness to issue more debt and run bigger deficits limited because the market recognizes and penalizes nation states that allow their fiscal positions to weaken?