03 December 2015 – Ambassador Cecilia B. Rebong, Philippine Permanent Representative to the United Nations (UN) in Geneva and Chairperson of the Geneva Chapter of the Group of 77 and China chaired the panel discussion on “Exogenous Shocks and Debt” during the 10th Debt Management Conference organized under the auspices of the United Nations Conference on Trade and Development. The conference is being held from November 23 to 25 at the UN Office in Geneva.
In her opening remarks, Ambassador Rebong said that “High external debt has diverse causes and consequences.” She cited that “In most low-income countries, it is the result of chronic current account deficits primarily reflecting limited export capacities and high dependency on imports for both consumption and investment purposes. By contrast, in many middle-income countries with a much higher degree of integration into the international financial system, a core driver of the accumulation of large stocks of external debt has been their increasingly easy access to international financial markets and private creditors since the mid-1970s.”
Ambassador Rebong further pointed out that “External debt has increasingly resulted from private capital inflows that are often unrelated to current needs for the financing of trade and investment. As their volume has frequently been very large compared to the size of the recipient economies, such flows have led to asset bubbles, currency overvaluation, superfluous imports and macroeconomic instability, thereby increasing the risk of defaults.” She added that “the direction and duration of such capital flows is largely determined by economic policy decisions in advanced economies.”
The panel focused on the role played by exogenous shocks to developing country debt sustainability. These are shocks that originate in the global economy and are caused by policy decisions and factors outside any individual developing country's direct control. Such shocks include sudden changes in commodity prices as well as the economic impacts of natural disasters and climate change, among others.
The panel discussed what developing countries such as the Philippines can do to mitigate the impact of such exogenous shocks on their economies, and on their long-terms debt strategies in particular.
One panelist, Mr. John Panzer of the World Bank said that “we are approaching an era of headwinds given the dip in the price of commodities and the projected slowdown in economic growth.” He suggested that “countries would need to be able to adjust quickly with the needed policy space. Increased domestic demand would also help together with debt risk management and diversification in the long run.”
The other panelist, Ms. Stephanie Blankenburg of UNCTAD talked about dealing with exogenous shocks through GDP Indexed Bonds (GIBs), which are financing instruments with a longer term. She concluded that “GIBs are not a cure all for debt sustainability. The best way to deal with sovereign debt crises brought upon by exogenous shocks is still through a multilateral legal framework on sovereign debt restructuring.” Such a framework is supported by the Group of 77 and China at the UN General Assembly in New York. END