<b>Cracks in the new financial architecture</b>

January 01, 1999

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Headline: Cracks in the new financial architecture Source: Euromoney Date: April 2001 Jorge Gallardo, minister of finance and economy of the Republic of Ecuador, offers his views on sovereign debt restructuring.         Jorge Gallardo Following the Mexican devaluation crisis of 1994 and the Asian crisis of 1997, the official sector (the IMF and the G-10 governments) became increasingly uncomfortable with the policy implications of bailing out private bondholders with public funds. The message went out in 1998 that bondholders and bank lenders should not expect to escape future sovereign debt crises without rescheduling their existing claims, lending new money or, when necessary, writing off part of the debt. This was hailed as the new international financial architecture. It lasted for only three years:1998-2000. During this period, two countries, Pakistan and Ukraine, were forced to reschedule their Eurobonds as a condition of obtaining multilateral and bilateral financial assistance. Russia successfully completed a restructuring of its Soviet-era debt owed to private creditors in August of 2000 and obtained a 36.5% reduction in the size of those claims. After defaulting on its Brady bonds (the first country to do so) and its Eurobonds in late 1999, Ecuador restructured those instruments a year later with approximately a 40% reduction in the size of the affected debt stock.

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