Low and Middle-income Countries: Debt Restructuring

Lord Oates Excerpts

Tuesday 12th March 2024 Lords Chamber

Asked by

[Lord Oates]

To ask the Secretary of State for Foreign, Commonwealth and Development Affairs what consideration he has given to introducing measures to compel private creditors to take part in debt restructuring for low- and middle-income countries facing debt crises.

[Lord Oates (LD)]

My Lords, in begging leave to ask the Question standing in my name on the Order Paper, I declare my interests as set out in the register.

[The Secretary of State for Foreign, Commonwealth and Development Affairs (Lord Cameron of Chipping Norton) (Con)]

My Lords, I have raised this issue directly with the Chancellor of the Exchequer. I completely understand the concern to ensure that private sector debt is fully part of debt restructuring for low and middle-income countries. There is a range of arguments that we should consider on this issue and we need to be mindful of the impact that legislation could have, including on the cost of and access to finance for partner countries.

[Lord Oates (LD)]

My Lords, I thank the Foreign Secretary for that Answer. He will be aware that lobbyists for private creditors made the same arguments ahead of the Debt Relief (Developing Countries) Act 2010, but when the Liberal Democrat-Conservative coalition reviewed the working of the Act in 2011, it found it to be a successful measure with no evidence of unintended or adverse effects. Given that the majority of relevant bonds are governed by English law, will the UK take a lead to ensure that private creditors take part in sovereign debt restructuring on the same terms? Will the Foreign Secretary work with the New York state authorities, which are also considering this issue?

[Lord Cameron of Chipping Norton (Con)]

Obviously, I remember fondly when we were working together in passing the Act to which the noble Lord refers. When that Act was passed there was a real problem with vulture funds acting as hold-outs in debt reconstructions. While there are still arguments for the approach he is taking, we have to ask: will it affect the cost of capital for poorer countries to borrow, will it affect the availability of capital and, crucially, now that we have the collective action clauses and the majority voting provisions, is it still necessary to have this sort of legislation? The IMF reviewed this in 2020 and concluded that things were working well, so there is a concern in my mind that the approach he is talking about is perhaps relevant to what was happening in the past rather than relevant to what is happening now. I think we should keep an open mind on it.