UNCTAD

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DEBT MANAGEMENT SOME ISSUES CHANGES OVER
THE DECADEB. BaballDebt Management-DMFAS
ProgrammeUNCTADPRESENTED AT UNESCAPS REGIONAL
WORKSHOP ON CAPACITY BUILDING FOR EXTERNAL DEBT
MANAGEMENT IN THE ERA OF RAPID
GLOBALIZATIONBANGKOK, 6-7 JULY 2004

• UNCTAD
• United Nations Conference on Trade and Development

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ONE DECADE AGO In fact, more than one decade
ago
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• Debt management was viewed as relatively
  insignificant
• Macroeconomic framework
• Institutional structure
• Human resources
• Other resources
• International organizations
• Other

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MACROECONOMIC FRAMEWORK

• Debt was at periphery of macroeconomic policy
• Not significantly considered in terms of policy
  decisions
• Countries borrowed, based on budget and BOP
  needs
• Not on implications of borrowing on
  sustainability, indicators, vulnerability

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MACROECONOMIC FRAMEWORK

• Debt strategy was not yet in the vocabulary
  of many countries.
• Policy decisions on debt were mainly REACTIVE
  reacting to problems or crises.

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INSTITUTIONAL STRUCTURE

• Debt management was insignificant in terms of
  institutional structure
• The functions were generally relegated to a unit,
  within a section, within a department.
• Several units were common.
• Decentralized environment not a problem
• But with no coordination
• Debt management characterized by ineffective
  information flows, communication, policy
  decisions

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RESOURCES

• In many countries, staff allocated with no
  recognition of the need for specialized skills
• Motivation
•  
• Frequent movements
• Inadequate

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DATA

• Data was far from perfect
• Concentration on public and publicly guaranteed
  external debt
• Not on
• Private non-guaranteed
• Domestic debt
• Onlending

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International Organizations

•  International institutions, advice to countries
  on restructuring of debt
• Yet, continued lending to these countries.
• Multilateral debt could not be rescheduled.

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International Organizations

•  
• Support mainly in terms of computerised debt
  management systems

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• In this context..
•  Many countries went from one debt crisis to
  another, from one restructuring programme to
  another until
• commercial debt was either restructured down or
  forgiven
• Same for bilateral debt
• from flow rescheduling to increasingly
  concessional restructuring,
• Increasing from 1/3 write-offs of stock in 1988
  to a possible 90 forgiveness in 1999 (Cologne
  Terms)
• Now Evian approach flexible based on debt
  sustainability analysis.

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• In this context..
•  
•   
• The South-East Asian financial crisis, when it
  hit, was as unanticipated in terms of its impact,
  as it was in terms of the contagion effects and
  solutions.

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• DEBT MANAGEMENT WAS A NEGLECTED DISCIPLINE
•  
•   

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• This, in spite of external debt, not to mention,
  total public debt
• being the largest, or one of the largest,
  financial portfolios in many countries
•  
• Debt accounting for the largest component of
  budget expenditures
• Replacing important public investments
•  
• And absorbing the largest share of exports
•  
•  
•   

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• This neglect was reflected in literature and
  guidelines
• Few
• World Bank Debt Management An Introduction
  (1994)
• UNCTAD Effective Debt Management (1989)
• External Debt Definition and Coverage (1984,
  1988)
• Debt Indicators, World Bank - indicative
• NO GUIDELINES

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• TODAY
• HAS ANYTHING CHANGED?

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• MONTERREY CONSENSUS (Mexico, March 2002)
• National comprehensive strategies to monitor and
  manage external liabilities, embedded in domestic
  preconditions for debt sustainabilityare key
  elements for reducing national vulnerabilities.Te
  chnical assistance for external debt management
  and debt tracking can play an important role and
  should be strengthened.
• International Conference on Financing for
  Development. First quadripartite exchange of
  views between government, civil society, the
  business community, and institutional
  stakeholders on global economic issues.

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• The UNITED NATIONS GENERAL ASSEMBLY (December
  2003) reinforced its existing resolution on debt
  (A/C.2/58/L.18) and also now invites UNCTAD, IMF
  and the World Bank, in cooperation with the
  regional banks, regional commissions and
  multilateral institutions, to study the
  possibility of creating a consultative group on
  external debt management aiming at developing
  best practices and strengthening the
  institutional capacity of developing countries in
  debt management.

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• UNCTAD X Plan of Action (Bangkok, 2000)
• There should be analytical work on management of
  public, external and domestic debt in developing
  countries in support on the work carried out by
  the DMFAS Programme and in cooperation with other
  international organizations.
• UNCTAD, through the DMFAS Programme, should
  strengthen the link to work of the World Bank
  notably, through the World Banks Debt
  Sustainability Module(DSM)
• Reinforced in UNCTAD XI, June 2004, Brazil

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• HAS ANYTHING CHANGED?
• SOME
• DEBT MANAGEMENT IS PROBABLY THE MOST DYNAMIC AREA
  OF MACROECONOMICS AND PUBLIC ADMINISTRATION
• GREATER RECOGNITION OF IMPORTANCE OF DEBT
  MANAGEMENT
• INCREASINGLY PROACTIVE DEBT MANAGEMENT RATHER
  THAN REACTIVE DEBT MANAGEMENT

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• DEBT MANAGEMENT HAS EVOLVED, IN TERMS OF
• Debt statistics
• Debt Recording Software
• Debt Guidelines
• Debt strategy formulation
• Debt sustainability analysis software
• Functions
• Legal Institutional arrangements
• International coordination support
• Other

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DEBT STATISTICS

• PREVIOUSLY
• EXTERNAL DEBT DEFINITION AND COVERAGE
  (1984,1988)
• IMF, WORLD BANK, BIS, OECD)
• TODAY
• EXTERNAL DEBT GUIDE FOR COMPILERS AND USERS
  (2003)
• (IMF, WORLD BANK, BIS, COMSEC, EUROSTAT, OECD,
  PARIS CLUB, UNCTAD)

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DEBT GUIDE

• COMPREHENSIVE GUIDE FOR COMPILATION USERS
• CONSISTENCY WITH OTHER STATISTICAL SERIES BOP,
  GOVT FINANCE, SNA
• BASIC CLASSIFICATIONS
• DEBTOR, INSTRUMENT, MATURITY
• NEW CLASSIFICATIONS RESIDUAL MATURITY
• ISSUESDEBTOR (GOVERNMENT, CENTRAL BANK OTHER
  PUBLIC. PRIVATE), CREDITOR. DOMESTIC DEBT.

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DEBT RECORDING SOFTWARE

• EVOLVED IN TERMS OF TECHNOLOGY AND
  FUNCTIONALITIES
• TECHNOLOGY EVOLVED FROM SINGLE USER, COBOL, DOS
  BASED
• FUNCTIONALITIES
• DOMESTIC DEBT
• REPORTS
• SECURITY
• OTHER INSTRUMENTS
• STILL EVOLVING classifications, private sector
  external debt

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DEBT RECORDING - NEW AREAS

• LOCAL GOVERNMENT
• PRIVATE SECTOR EXTERNAL DEBT
• DEBT STRATEGY SOFTWARE LINKS
• INTEGRATED FINANCIAL MANAGEMENT SYSTEMS

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GUIDELINES FOR PUBLIC DEBT MANAGEMENT

• IMF, WORLD BANK
• Clear objectives
• Coordination with monetary and fiscal policies
• Transparency accountability
• Effective institutional framework
• Debt management strategy
• Risk management framework
• Development maintenance of efficient market for
  government securities
• Public debt managers role in informing government
  on a timely basis of any emerging debt
  sustainability problems
• Debt managers should make sure that they have
  received appropriate legal advice

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DEBT STRATEGY FORMULATION

• NOW COUNTRIES INCREASINGLY CONSIDERING REGULAR
  (MINIMUM ANNUAL) DEBT STRATEGY EXERCISE AS PART
  OF MACROECONOMIC FRAMEWORK
• PROACTIVE, TO ALERT COUNTRIES TO POTENTIAL DEBT
  DIFFICULTIES, RATHER THAN REACTING TO DEBT CRISES
  WHEN THEY OCCUR
• THEORY, CONCEPTS AND INDICATORS EVOLVING
• SOFTWARE DEVELOPED BUT CONTINUES TO EVOLVE
• LONG WAY TO GO
• .IMF PRESENTATION LATER
•                                                  
                                           

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NEW DEBT FUNCTIONS
FUNCTIONAL APPROACH RISK MANAGEMENT/ALM
DEVELOPMENT OF MARKET FOR GOVERNMENT
SECURITIES                                       
                                                  
        
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INSTITUTIONAL ARRANGEMENTS

• NEW APPROACH TO ORGANIZATION OF DEBT MANAGEMENT
• CENTRALIZING OF DEBT MANAGEMENT IN A DEBT
  OFFICE
• - INDEPENDENT/QUASI-INDEPENDENT
• - MAINLY IN DEVELOPED COUNTRIES - DEBT
  SECURITIES ISSUANCE
• QUESTION CAN THIS MODEL BE APPLIED TO DEVELOPING
  COUNTRIES WITH SIGNIFICANT OFFICIAL DEBT?
• BEST PRACTICE?? STAFFING??
•                                                   
                                                

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INTERNATIONAL ORGANIZATIONS

• GIVING GREATER IMPORTANCE TO DEBT MANAGEMENT
• IMF, WORLD BANK
• UNCTADREFLECTED IN NAME CHANGE FROM
• DMFAS PROGRAMME TO
• DEBT MANAGEMENT-DMFAS PROGRAMME
• CAPACITY BUILDING APPROACH
• UN AGENCIES (UNESCAP, UNDP, OTHER)
•   OTHER
•                                                   
                                              

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• INTERNATIONAL COORDINATION. E.g.
• DEBT GUIDE
• INTERNATIONAL TASK FORCE ON DEBT STATISTICS
• GUIDELINES FOR PUBLIC DEBT MANAGEMENT
• JOINT BIS-IMF-OECD-WORLD BANK Statistics on
  External Debt
• World Bank-IMF quarterly external debt
  statistics database (SDDS-subscribing countries)
• World Bank-UNCTAD DSM 
•                                                   
                                                

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• INTERNATIONAL SUPPORT
• DEBT MANAGEMENT IMPORTANT COMPONENT OF PACKAGE
  TO SUPPORT BY SOME DONORS INTERNATIONAL
  ORGANIZATIONS
• LONG-TERM COMMITMENT
• Eg. UNCTAD HELP DESK FOR DEBT RECORDING
•  
•                                                   
                                                

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• MOST IMPORTANT
• COUNTRIES GIVING MORE ATTENTION TO DEBT
  MANAGEMENT
• Eg.
• REVIEWING STRUCTURES
• IMPROVED RECORDING
• DEBT STRATEGY
• DOMESTIC DEBT
• RISK MANAGEMENT
• CAPACITY BUILDING PROGRAMMES

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BUT STILL A LONG WAY TO GO

• AT NATIONAL LEVEL
• LEGAL INSTITUTIONAL ARRANGEMENTS
• DEBT STRATEGY
• RISK MANAGEMENT APPROACH
• MACRO-LINKAGES
• RESERVES MANAGEMENT,MONETARY POLICY,
  BUDGET, OTHER
• RECORDING DOMESTIC DEBT, CONTINGENT
  LIABILITIES, PRIVATE SECTOR EXTERNAL DEBT,
  ONLENDING, GRANTS GOVT NGOs

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BUT STILL A LONG WAY TO GO

• AT NATIONAL LEVEL
• TRAINING AND RETAINING STAFF
• OTHER
• NOT A SHORT-TERM PROCESS

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BUT STILL A LONG WAY TO GO

• AT INTERNATIONAL LEVEL
• DEBT STRATEGY THEORY, CONCEPTS, INDICATORS
• DEBT STRATEGY SOFTWARE
• RISK MANAGEMENT APPROACH
• RISK MANAGEMENT SOFTWARE
• IS THERE A BEST PRACTICE FOR ORGANIZATION OF A
  DEBT OFFICE ?
• STATISTICS RECORDING
• DEBT GUIDE TOTAL PUBLIC SECTOR DEBT
• DOMESTIC DEBT
• INTEGRATED FINANCIAL MANAGEMENT SYSTEMS

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BUT STILL A LONG WAY TO GO

• DEBT MANAGEMENT CONTINUES TO EVOLVE
• COUNTRIES WILL HAVE TO RESPOND TO NEW
  DEVELOPMENTS.

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• In conclusion
• DEBT MANAGEMENT IS NOW GIVEN MORE RECOGNITION
• AND THEREFORE MORE CONCERTED EFFORTS TO IMPROVE
• BUT
• STILL A LONG WAY TO GO IN TERMS OF
• THEORY AND APPLICATION
• HAVING IMPROVED SYSTEMS IN COUNTRIES
• TO REAP THE BENEFITS OF BORROWING FOR GROWTH AND
  DEVELOPMENT, WITHOUT THE DANGERS OF SLIPPING INTO
  A DEBT TRAP

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THE END