Dáil Éireann debate -
Tuesday, 11 Feb 2003

Vol. 561 No. 1

Written Answers. - Debt Reduction.

Dan Boyle

Question:

241 Mr. Boyle asked the Minister for Finance if he will support the establishment of a fair and independent arbitration process, akin to the arbitration process that forms part of the Chapter 11 insolvency process in the US, to deal with the issue of the debt of developing countries, particularly those that have accumulated odious or illegitimate debt; and if he will make a statement on the matter. [3629/03]

Dan Boyle

Question:

242 Mr. Boyle asked the Minister for Finance his Department's position regarding the issue of a sovereign debt reduction mechanism that is coming up for discussion at the spring meeting of the IMF and the World Bank in April 2003; and if he will make a statement on the matter. [3630/03]

Minister for Finance (Mr. McCreevy):

I propose to take Questions Nos. 241 and 242 together.

The question of how nations handle unsustainable sovereign debt has become a pressing issue for the international community. At present, there is no formal agreed mechanism to deal with default by a sovereign state. In recent years this problem has intensified as private capital flows have increased relative to official flows.

The problem is exacerbated by the great variety of debt instruments involved, and the range of legal jurisdictions in which debt is issued. The Chapter 11 type concept sometimes proposed as a solution is borrowed from US law and it applies there to companies and not to public bodies, such as local authorities, let alone to sovereign states.

In September 2002 the International Monetary and Financial Committee, IMFC, requested the IMF to work to develop a sovereign debt restructuring mechanism, SDRM, proposal for consideration at the April 2003 meetings. Proposals are awaited and while Ireland and other EU states are very interested in the suggestions coming forward, many lenders, particularly private lenders, and other states are initially negative. Reforming the sovereign debt restructuring framework is a formidable task that, even with agreement, would take many years to develop and implement. There are also a host of technical and institutional issues still to be examined. There are numerous concerns about the consistency of any proposal with national laws.

Furthermore, NGOs and others have also raised fundamental questions about the role to be played by the SDRM. Some of these call for a forum that could act as an arbitrator on grounds of sustainability, or on the political or moral validity of certain claims due. While we would wish for all countries to make wise use of borrowed money, it is by no means true that all do. External assessment of whether projects were initially appropriate raises problems not alone for lenders seeking repayment, but also with the issue of national sovereignty for the borrowers, with the selection of any such assessors, and with any assessment criteria to be used. Ireland has been a consistent supporter of bottom-up development and is a firm believer that the ultimate solution to the development problems lies in the hands and direction of the developing countries themselves.

Any new arrangement would also need to ensure that the already limited flow of funds to developing countries did not diminish, if private lenders decided that any new procedure made lending there more risky. Thus for any such proposal to be workable, the agreement and participation of the private sector is essential. Given that they have so far been very cautious about involvement in any multilateral initiatives aimed at crisis prevention and-or resolution, considerable assurances will be necessary to secure their willing involvement in any SDRM type process.