IIF Authors

Status: Will be live at 11/14/2004 15:40

Principles For Stable Capital Flows And Fair Debt Restructuring And 2012 Addendum

Principles for Stable Capital Flows and Fair Debt Restructuring is a market-based approach to strengthening the framework for sovereign debt markets. The Principles constitute a set of flexible guidelines for the behavior of sovereign debtors and their investors, in good times as well as in periods of distress. The Principles were conceived in the aftermath of the sovereign debt crises in Asia, Russia and Latin America. They constitute a voluntary code of conduct between sovereign debt issuers and their private sector creditors, endorsed by the G20 in 2004. Prior to 2010, the Principles applied only to sovereign issuers in emerging markets, but their applicability has since been broadened to encompass all sovereign issuers (on a voluntary basis), as well as cases of debt restructurings by non-sovereign entities in which the state plays a major role in influencing the legal and other key parameters of debt restructurings.

These Principles outline actions and behavior of private sector creditors and emerging market sovereign debtors to promote and maintain stable private capital flows to emerging market economies in the context of growth and financial stability. They are based on extensive and broadly based discussions among private creditors and sovereign emerging market issuers. The Principles build on the progress since the mid-1990s to identify effective measures in order to shore up crisis prevention and encourage their continued implementation. The Principles promote early crisis containment through information disclosure, debtor-creditor consultations, and course correction before problems become unmanageable. They also support creditor actions that can help to minimize market contagion.  In cases where the debtor can no longer fulfil its payment obligations, the Principles outline a process for market-based restructuring based on negotiations between the borrowing country and its creditors that involve shared information, are conducted in good faith, and seek to achieve a fair outcome for all parties. Such a process maximizes the likelihood that market access will be restored as soon as possible under sustainable macroeconomic conditions.

Given that they are a voluntary code of conduct, effective implementation of the Principles requires acceptance and adherence by both debtors and creditors. The Group of Trustees of the Principles for Stable Capital Flows and Fair Debt Restructuring, with the support of the Principles Consultative Group, encourages and monitors implementation of the Principles. While these groups have no statutory authority, they have earned de facto acceptance by sovereign debtors, their creditors and the international policy community—due in large part to the reputation and stature of their members, who collectively have decades of experience in international policy and capital markets. The IIF serves as Secretariat to both groups.