Is the international sovereign bond market on the verge of a great transformation or will the recent debate over terms and conditions turn out to be so much hot air? Investors and bankers are hoping for the latter proclaiming that any changes would cut off the supply of capital to emerging markets. Others decry a situation in which they see different lenders getting different treatment due more to historical evolution than to any set of rational principles.
The nub of the argument revolves around the difficulties of restructuring bonds - because of the large number and variety of investors involved - and whether the documentation should be changed to include automatic rescheduling in the event of default. Matters have been brought to a head by attempts by the Paris Club, which has been negotiating a restructuring of Pakistan's bilateral debt, to persuade the government to also restructure its international bonds. The IMF has supported the Paris Club in its efforts although the crisis has now eased following a May 18 agreement by western banks to roll-over $500 million in trade finance falling due, allowing bond coupon payments to be made until the year's end.