Legal frameworks and general principles forindicators in sovereign debt restructuring

Michael Riegner

NYU School of Law/Giessen University

UNCTAD DWM Working Group Meeting 19 March 2014, Buenos Aires

‘…as long as we are unable to put our arguments into figures, the voice of our science … will never be heard by practical men. They are, by instinct, econometricians all of them, in their distrust of anything not amenable to exact proof.’

Joseph Schumpeter

“The reduction of all qualities to quantities is nonsense”

Friedrich Nietzsche

Outline

• Indicators in international law

• Lessons learned: Existing legal contexts

• Normative framework: General principles

• Recommendations for DWM design– namely: Possible wording of GA

resolution/UNCTAD principles

Main points

• Indicators should be used for signalling and guiding restructuring BUT– Not in isolation– Subject to legal framework

• General principles should guide indicator framework – Derived from existing sources of law– Sustainability, transparency, ownership, social rights

• Recommendations for indicators in DWM– Multiple purposes of indicators – Cascade of sources and authors – namely: GA resolution– Application subject to impartiality, transparency, review et al.

Indicators in international law

• DWM indicators: Economics – politics – law

• IL contributes to effectiveness, legitimacy, acceptance of DWM indicators, namely through:

• General principles guiding rules, setting standards, structuring interplay

• „Global administrative law of information“

Existing frameworksIMF EU

Debt Sustainability Framework/Assessment

Fiscal governance

Surveillance, exceptional access lending, conditionality

Fiscal discipline, ESM lending, Commission surveillance

Soft sources, risk-based indicators, discretion

Hard law (treaty/secondary), 60% to GDP, semi-automatic enforcement procedure

Performance +/-; flexbility +/-; (P) impartiality, limited scope

CrisisEnforceability and (in)flexbility „Gaming the indicators“

Existing frameworks

• National law– Subnational debt restructurings– Central government debt constraints – Statistical governance, data quality

• Private actors – Litigation, market conditions – Coordination by indicators (cf. MDGs)– Governance by indicators (cf. Doing Business)

Lessons learned

• Potential of indicators– Evidence-based policy, coordination,

transparency/acceptance, social concerns • Enabling conditions– Technical quality, impartiality,

acceptance/legitimacy, enforceability • Pitfalls– Obscuring value choices and uncertainty; deceptive

precision; misguiding attention and incentives; unchecked power

-> Use indicators, but subject to legal framework

General principles

• Sources and methodology

• Sustainability– Output legitimacy – Cost efficiency; restructuring to restore sustainability– Duty to conduct negotiations based on reliable evidence –

qualitative and quantitative – Availability, impartiality, quality of statistics: capacity,

scientific methods, organizational safeguards, external review

– Do not use one, but several indicators to avoid mistakes, gaming etc

General principles

• Transparency – Input, throughput, output legitimacy – Indicators to make restructuring more transparent

and reasoned – Indicators themselves transparent and reasoned– Disclose data, Access to Information, transparent

process, give reasons for indicators

General principles

• Ownership – Input legitimacy, self-determination, democracy – Measure of state control over restructuring– Ownership over indicators, cf. Paris Declaration• Legitimate value choices, uncertainty, IPA

– State response and rebuttal of DAS – Participation? – Equality?

General Principles

• Human Rights/Social Protection– Throughput and output legitimacy – Respect, protect, fulfil, and monitor (CESCR,

OHCHR, indicators)– Human rights impact assessments• Monitor and mitigate • Distinguish inability / unwillingness• Floor for social spending – size of restructuring/haircuts

– Take into account in negotiations (states, IOs, private creditors)

– BUT caveats apply

Recommendations: How to use indicators

1. Requirements for restructuring

a) debtor state request

b) IO finding that debt is unsustainable

2. Measure debt sustainability with set of indicators and reasoned and transparent qualitative assessment

3. Use to render restructuring negotiations and dispute settlement more efficient, coordinated and transparent

4. Use human rights indicators to monitor and mitigate social and human impact

Recommendations: Sources and competences

5. Recognize general principles in GA resolution on a DWM

6. Cascade of sources and competences – Define political competence and requirement for

mandate – Lay down substantive principles – Define competence and procedure for impartial

application

7. Application by independent expert organ subject to impartiality safeguards

8. Procedure: mandatory government response, transparent and reason giving, public comment

9. Measures on data quality and good statistical governance

10.Periodic external expert review and political re-evaluation

Recommendations: Application

Draft proposal

The GA / the Principles on Debt Restructuring recognize the following principles on debt assessments and indicators and call upon all actors involved in restructurings to implement these principles in their regulations and practice:

Draft proposal

a) Principle of debt sustainability: Restructurings should be conducted in a cost-efficient and evidence-based manner that restores debt sustainability. The evidence base includes impartial and reliable qualitative assessments as well as statistical evidence (including indicators), produced by an independent institution with the necessary expertise subject to periodic outside review.

Draft proposal

b) Principle of transparency: Restructurings should be conducted in a transparent manner and give reasons for their outcomes. All relevant assessments, evidence and indicators should be made public, and their construction, application and underlying data should be transparent and explained in an understandable manner.

Draft proposal

c) Principle of ownershipSelf-determination requires a measure of state ownership over the restrucuring process, including the political aspects of assessments, statistical evidence and indicators. This includes namely underlying value choices, the treatment of uncertainty and exercises of international public authority. Such ownership can be satisfied by an explicit mandate from the political organs of a competent international organization.

Draft proposal

d) Principle of social protectionAll actors involved in a retructuring must cooperate to monitor and mitigate the human and social impact of the restructuring. This entails the production of human rights statistics and indicators as required by applicable international law. Resulting evidence must be taken into account in all restructuring negotiations and decisions.

Discussion

• Current role of DSAs? • Is HR principle/terminology acceptable? • Can we distinguish technical/political?• Draft proposals?• Global administrative law of information?

Gracias por su atención

Michael RiegnerNYU School of Law / Giessen University

mcr449@nyu.edu