On October 23, Timothy F. Geithner, U.S. Treasury Under-Secretary for International Affairs, spoke at a special meeting in New York City sponsored by EMTA and the Securities Industry Association and outlined the basic principles that the U.S. Treasury believes should guide the international community’s approach to financial crises in the Emerging Markets. Mr. Geithner’s remarks offered a set of proposals to improve the process for crises resolution, including greater transparency in official policy to help facilitate dialogue and cooperation between the official sector and the private sector, and between governments in crises and their creditors.
Growing concerns about official sector efforts to "bail in" the private sector came to a head in the context of Ecuador’s default on its Brady bonds last year and subsequent exchange offer this past August that effectively restructured them. Foremost on the minds of audience members seemed to be the implications of official sector policy for major countries such as Argentina.
Significant in Mr. Geithner’s address were statements to the effect that private investors should not expect to be protected from adverse outcomes by official action, and that it is a debtor country’s capacity to design and carry out credible economic policy that fundamentally determines its ability to overcome financial crises. The full text of Mr. Geithner’s remarks can be found in the New Developments area of EMTA’s website.
EMTA welcomed Mr. Geithner’s remarks as an effort to respond to many private sector concerns about the way Ecuador was handled. Particularly encouraging were proposals to make the Paris Club more transparent and to get debtor countries to invest more in dialogue and communications, during good times and bad, with their private creditors. What remains to be seen is whether greater transparency and better communications will improve what private creditors see and hear.
Although EMTA agrees wholeheartedly with the objective of promoting flows of private capital into the Emerging Markets, we believe that the best way to ensure that this objective is met is to ensure that, once made, these flows are returned to the private sector in accordance with their terms.