Sovereign lending gone wrong : who bears the costs?

![CDATA[This exploratory issue paper begins with a statement by Joseph Stiglitz, Nobel Laureate in Economic Sciences, which outlines what a well-functioning global financial system would achieve, followed by his dry statement that the current global financial system does none of these things. The paper is concerned with issues around the question of burden sharing between borrowers and lenders in the case of sovereign lending gone wrong. The second section looks at the instruments used to deal with the debt crises of the 1990s and 2000s, and the burden sharing arrangements they imply. The paper first looks at the development from the International Monetary Fund’s Enhanced Structural Adjustment Facility (ESAF) to its Poverty Reduction and Growth Facility (PRGF), and then reviews the Enhanced Highly Indebted Poor Countries (HIPC) Initiative in the context of poor countries’ debt overhang or phantom debt. This context also provides the background against which the IMF’s proposal for a Sovereign Debt Restructuring Mechanism (SDRM) is examined, followed by a discussion of the role Collective Action Clauses (CACs) can play. The last part of the second section presents the not so new alternative of an International Chapter 9 Insolvency, which is also called Fair and Transparent Arbitration Procedure or FTAP. The concluding section asks some questions for further investigation, which centre around the question who would want to hold on to an international monobanking system and why? And this at a time when the IMF in particular is advising countries who used to have a monobanking system themselves on how to develop a two-tiered banking system. Why can’t they see the plank in their eye?]]