Facilitating Restructurings- rationale in era of globalisation:
There has been some progress in the last few years in efforts to improve the framework for sovereign restructurings. In particular, collective action clauses have become the market standard where emerging market governments issue debt under foreign law. The Bretton Woods institutions should be willing to lend to a sovereign that is in default to its private creditors only when two conditions have been established. One, the country must commit to a credible medium-term adjustment programme, one that offers that prospect of a successful restructuring and a reasonably early return to the capital markets. This has to be established upfront for any restructuring effort to work. Commitment to a credible adjustment path that offers the reasonable prospect of a return to financial visibility and growth is the necessary foundation for engagement by the creditors in a restructuring process. Without that, there is littlebasis for meaningful engagement.
Two, before an institution can commit its support, the country must develop, in consultation with its advisors, and outline to the institution and its creditors, a credible and monitorable framework for cooperatively achieving a viable debt restructuring, one that leaves the country with a sustainable debt burden. The issues of appropriate adjustment and appropriate broad terms of proposed restructuring are closely intertwined and need to be assessed in tandem. For the BW institution, it should be an essential prerequisite that the country demonstrate at the outset that its approach has credible prospects for enlisting broad credit concurrence, and for being consistent with country's macroeconomic framework and payment prospects.