In the past couple of years the relationship between
holders of emerging-market bonds and the official sector has
changed from one of mutual beneficial co-operation to one of
greater antagonism.
The actions that led to this state of affairs emanated from the
official sector and have been driven by the desire to cut foreign
aid budgets, though this motivation is not fully transparent.
Effectively, bond investors are being encouraged to contribute to
the resolution of emerging-market balance-of-payments crises by
assenting to bond restructurings. Although bond markets can and do
design their own voluntary solutions to such crises, the official
sector's involvement is unwelcome and unnecessary. It is
detrimental to good faith between bondholder and debtor and
compromises future access to private-sector capital for the debtor.
In addition to the fact that the current policy is misguided,
uncertainty about how much the official sector will meddle in
private-sector relationships with emerging-market sovereign...
