BMA and IIF issue new proposals to protect sovereign debt investors

The heads of six major financial bodies, including the Bond Market Association (BMA) and the Institute of International Finance (IIF), have issued a list of principles to enhance creditor protection in cases of sovereign debt restructuring.

The move was prompted following the high-profile default by Argentina last year, which reignited the issue of how creditors should be paid in the event of a sovereign restructuring.

Abigail McKenna, chairman of the board of the Emerging Markets Creditors Association, which formed part of the group issuing the proposals, said one of the key principles is to have greater transparency in the negotiating process in cases of restructuring. This requires creditors having clearer information on a sovereign’s international reserves. The proposals also push for greater dialogue between the sovereign and investors and creditors to reduce the likelihood of crises.

A further proposal is to enhance the role of trustees to make it easier for creditors to be repaid. The principles, issued today, were set forth in a letter to the G-7 finance ministers and central bank governors.