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May 28, 2020

Washington, D.C.: Today, the Institute of International Finance (IIF) has published new Terms of Reference to facilitate effective, voluntary private sector participation in the G20/Paris Club Debt Service Suspension Initiative (DSSI).

Since the April 15th G20 Communiqué, which asked the IIF to serve as a principal point of contact, knowledge partner and clearinghouse to generate private sector feedback and support, the IIF has actively engaged private sector creditors, public sector officials, and civil society in robust discussion.   This process has been centered around the development of Terms of Reference—a toolkit for DSSI-eligible sovereign borrowers that request forbearance from their private creditors.  This new framework offers a flexible template for in-scope borrowers and their private creditors to advance conversations and enable voluntary debt service suspension, on terms in line with official bilateral creditors.

“Throughout this entire process, the IIF has been adamant that creditors of every type and size have a role to play in making sure the world’s most vulnerable countries have the liquidity needed to combat the COVID-19 pandemic,” said Tim Adams, IIF President and CEO. “These Terms of Reference represent the tireless efforts of the private sector to do the right thing. Though some challenges remain in terms of implementing the DSSI, we have had a very constructive dialogue with the public sector about these and feel confident that this process has resulted in a framework that will facilitate maximum cash flow relief, given numerous legal and practical constraints.”

In developing the Terms of Reference, the IIF engaged more than 100 private creditors, representing in excess of $45 trillion assets under management. This deliberate, consultative process also included coordination with the International Monetary Fund, World Bank, Paris Club, United Nations Economic Commission for Africa, and more than a dozen finance and development ministers representing DSSI-eligible countries.

As the economic fallout of the COVID-19 pandemic becomes clearer in the coming months, concerns over debt sustainability may continue to mount. These challenges should be addressed in accordance with the Principles for Stable Capital Flows and Fair Debt Restructuring, which were agreed to in 2004, and endorsed by the G20 Ministerial Meeting in Berlin that same year. The Principles constitute a voluntary code of conduct between sovereign debt issuers and their private sector creditors that incorporates market-based, flexible guidelines for the behavior of sovereign debtors and private creditors to promote and maintain stable capital flows as well as to support financial stability and sustainable growth.  These Principles are thus highly relevant in the context of the DSSI as well.

Further, the DSSI has emphasized the importance of operationalizing the Voluntary Principles for Debt Transparency, for which the G20 expressed support in the 2019 Fukuoka Finance Ministers and Central Bank Governors Meeting Communiqué.  The lack of clear and transparent data on sovereign debt burdens in DSSI-eligible countries has only compounded the complications and complexities of the task at hand.

The full Terms of Reference can be accessed online here: https://www.iif.com/Publications/ID/3920

Today’s letter to the G20 IFA Working Group, which accompanied the Terms of Reference, can be accessed here: https://www.iif.com/Publications/ID/3919

 

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About the IIF

The Institute of International Finance is the global association of the financial industry, with more than 450 members from more than 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. IIF members include commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks.