Restructuring debt is top priority
Litigation risk for years to come
NOT FOR THE first time, sovereign debt restructuring is likely to dominate the IMF/World Bank annual meetings. Most of the discussion this year will concentrate on Argentina: what the country should do, what the IMF should do, whether the debt exchange is going to be a success.
In the background, making far fewer headlines, will be negotiations on $100 billion of another country's debt. Representatives from all the big creditors will be trying hard to reach a solution and there's a good chance that progress will be made.
After all the emphasis on collective action problems and bond restructurings, the official sector has a tough nut of its own to crack. If a small group of countries can't agree on restructuring sovereign debt, they should think twice about lecturing a much larger group of bondholders on doing the same thing. Even if the bilateral creditors do come to an agreement, questions will remain on how and why the private sector should accept the terms of that deal.
The country in question is Iraq, the ultimate case of financial contracts running squarely into political realities.