16. March 2016

FTAP-Update: July 2015

  1. Greece

From our perspective it is delightful to see that despite the high toll, which the confrontational stance of the Greek government is taking on the Greek people, it seems to pay off. Today the IMF Managing Director (again) underlined the need for a debt restructuring, and the calls by the US treasury lend support to this demand. More and more people seem to understand that a solution to the crisis is impossible without substantial debt relief, and that this needs to organized rather today than tomorrow.

It needs to be pointed out that this is not a new position on the part of the Fund: Its involvement into the fatal 2010 bailout had already met with considerable internal criticism, which is very concisely described in an excellent recent paper by US journalist Paul Blustein. Additionally the Fund can claim to have underlined the need for more European concessions in the likely case of Greek failures to implement the 2012 program. So, today it rightly fears for its own resources invested in Greece and thus supports the Greek call for debt reduction (by others, of course).

  1. The UN process towards a sovereign debt workout

The brave initiative by the G77 & China to have the UN General Assembly discuss and design a sovereign debt workout mechanism has been hailed by us and by many colleagues as an emancipatory step after decades of creditor driven futile debt management.

Latest news, however, are not encouraging. It seems that obstruction from both the EU as well as the JUSCANZ group in the UN has succeeded in watering down the eventual outcome of the process to (just another) resolution, rather than a “legal framework” as envisaged in September 2014 or any other material and binding outcome. The third and last meeting of the ad-hoc committee has been scheduled for July 27th/28th. Intelligence, which we can obtain from the German government – absurdly one of the hardliners on the obstructive side – does not indicate any willingness to reward the G77’s compromising shift and return to the dialogue.

  1. Ever more countries in crisis

The IMF has updated its LIC-DSA list on May 7th, and we have now all in all 16 low-income countries at “high” risk of debt distress. Out of these 9 are post-completion point HIPCs. Most strikingly, the HIPC star success story Ghana has just been “upgraded” from “moderate”. A “high” risk under the IMF methodology means that already under the Fund’s baseline projections a country is expected to breach critical debt indicator thresholds. If this happens just under any of the alternative shock scenarios, but not under baseline, a country is categorized as “moderate risk”.

Among the high-risk non-HIPCs, the most spectacular newcomer is Mongolia.

erlassjahr.de is presently exploring co-operation with civil society and governments in East Africa and the Caribbean with regard to new initiatives for debt management reform.