UNITED NATIONS (AP) - The U.N. trade chief said Thursday there
is a "missing link" in the international financial system that is
becoming more critical as the global economic crisis drags on: What
happens when a country is bankrupt and can't pay its debts?
Supachai Panitchpakdi told a U.N. financial summit he is trying
to help 90 poor countries with vulnerable economies, many with
debts beyond 100 percent of the value of their overall economy, as
measured by the gross domestic product.
Developing countries at the three-day conference, which ends
Friday, have been pleading for more money to shore up ailing
economies hard-hit by a crisis they didn't cause.
Prime Minister Stephenson King of St. Lucia, one of 10 world
leaders at the summit, urged the international community for a
"significantly larger amount of grant funding" in the next two
years, saying: "We simply cannot afford the stranglehold of
He said there is no international court to deal with the
bankruptcy of a country so every nation would have to rely on its
own national rules and regulations.
Panitchpakdi, secretary general of the U.N. Conference on Trade
and Development, cited Chapter 11 of the United States Bankruptcy
Code, which permits all businesses to reorganize under U.S.
bankruptcy laws, as a possible model - a view echoed by Martin
Khor, executive director of the South Center, a Geneva-based
research organization with 50 developing countries as members.
"We are afraid that many developing countries will be plunged
into a new debt crisis which would be very unfortunate," Khor
said, noting that the World Bank recently said 40 countries are
facing serious debt problems as a result of the global economic
Chrysler and General Motors filed for bankruptcy under U.S. law
"so that the motor car can run again," he said. "If the motor
car can run again, so can the low income countries and the indebted
countries where billions of people" are facing increasing poverty
Both companies got multibillion dollar lifelines from the U.S.
government, probably more than the budgets of many developing
Khor said the establishment of an "international debt
arbitration system" - which he likened to a kind of international
bankruptcy court for developing countries unable to meet their debt
payments - was first raised by UNCTAD in the late 1990s and then by
the International Monetary Fund, and is long overdue.
For a country whose reserves are running very low, Khor
suggested, the court could organize the creditors to come to meet
the debtor and scientifically calculate what the debt is worth and
how much the creditors should be repaid - "in other words a
drawdown on the debt."
There would be no litigation against the debtor, "and finally
new financing should be given to the debtor so that the country can
continue again as a viable entity," he said.
Both Panitchpakdi and Khor said the most immediate need is a
temporary moratorium on debt payments by poor countries, similar to
the five-year debt moratorium for the countries hardest-hit by the
Asian tsunami in 2004, to deal with the fallout from the economic
But the UNCTAD chief had a slightly different idea of how to
address "the missing link we are seeing at the moment in the
international financial system - (which) is a system to deal with a
so-called sovereign debt insolvency" by a country.
During the debt standstill, Panitchpakdi said, "some new
financing could be generated so countries could go on living and
paying attention to their own economic growth - and at the same
time to be looking at the debt restructuring in a way that would
have the involvement of the international institutions like the
International Monetary Fund."
He called for a new discussion on the insolvency of countries
that would not only include the IMF and World Bank but U.N.
agencies to generate "impartiality" as well as organizations like
the South Center.
Germany's development minister, Heidemarie Wieczorek-Zeul, told
the summit "we must ensure that developing countries are not
pushed into a renewed spiral of debt by development partners."
She said this should be done by providing more concessional
funding and "establishing a sovereign debt workout mechanism."
Norway's International Development Secretary Hakon Golbrandsen
noted that "a lot has been achieved in terms of debt relief over
the last few years."
"In order to avoid that unsustainable debt again builds up, we
would like to underline the responsibility of both lenders and
borrowers," he said.
Golbrandsen called for a U.N. working group to tackle the
question of "a new, independent, fair and transparent debt workout
Copyright 2015 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.