Sovereign debt restructuring can be defined as an exchange of outstanding sovereign debt instruments, such as loans or bonds, for new debt instruments or cash through a formal process. Sovereign debt here refers to debt issued or guaranteed by the government of a sovereign state. Sovereign debt restructuring entails two main elements: debt rescheduling, defined as a lengthening of maturities of the old debt, possibly involving lower interest rates; and debt reduction, defined as a reduction in the face (nominal) value of the old instruments. Both types of debt operations entail a loss in the present value of creditor claims. Since the 2008 global financial crisis, there has been a wave of sovereign debt defaults and restructurings in both advanced and emerging market economies.
The Non-Aligned Movement has adopted its principled position on sovereign debt restructuring in accordance with the United Nations General Assembly resolution 69/319 titled “Basic Principles on Sovereign Debt Restructuring Processes” adopted on 10 September 2015. UN Resolution 69/319 states that a Sovereign State has the right, in the exercise of its discretion, to design its macroeconomic policy, including restructuring its sovereign debt, which should not be frustrated or impeded by any abusive measures. Restructuring should be done as the last resort and preserving at the outset creditors’ rights.
The resolution also calls for good faith by both the sovereign debtor and all its creditors, which would entail their engagement in constructive sovereign debt restructuring workout negotiations and other stages of the process with the aim of a prompt and durable re-establishment of debt sustainability and debt servicing, as well as achieving the support of a critical mass of creditors through a constructive dialogue regarding the restructuring terms.
The UN resolution also calls for transparency through timely sharing of both data and processes related to sovereign debt workouts, so as to enhance the accountability of the concerned actors. In accordance with the UN Principles, NAM too stresses on the implementation of the principles on legitimacy and sustainability.
Legitimacy entails that the establishment of institutions and the operations related to sovereign debt restructuring workouts respect requirements of inclusiveness and the rule of law, at all levels. The terms and conditions of the original contracts should remain valid until such time as they are modified by a restructuring agreement. Sustainability implies that sovereign debt restructuring workouts are completed in a timely and efficient manner and lead to a stable debt situation in the debtor State, preserving at the outset creditors’ rights while promoting sustained and inclusive economic growth and sustainable development, minimizing economic and social costs, warranting the stability of the international financial system and respecting human rights.
Non-Aligned Movement has appreciated the work carried out by International Monetary Fund, the United Nations Conference on Trade and Development, the Department of Economic and Social Affairs of the Secretariat and the Paris Club on sovereign debt restructuring. At the 17th NAM Summit held in Venezuela in 2016, NAM recognized the roles of the United Nations and the international financial institutions in accordance with their respective mandates, and encouraged them to continue to support global efforts towards sustainable development and a durable solution to the problem of the debt of developing countries.
NAM has also allayed serious concerns about the substantial increase in the financial stability risks of many developed economies and, in particular, their high structural fragilities in financing sovereign debt created as a result of transferring private risk to the public sector. In this regard, NAM has called for urgent and coherent solutions to reduce sovereign risk in developed economies in order to prevent contagion and to mitigate its impact on the international financial system and on developing countries.