What to Do About Debt

The world must prepare for higher interest rates. The McKinsey Global Institute estimates 2014 global debt at $199 trillion, more than 2.5 times global GDP. “Servicing these debts will most likely become increasingly difficult over the coming years, especially if growth continues to stagnate, interest rates begin to rise, export opportunities remain subdued, and the collapse in commodity prices persists,” writes Richard Kozul-Wright, director of the Division on Globalization and Development Strategies, UN Conference on Trade and Development, adding that emerging economies are particularly threatened. “Increasingly open financial markets allow foreign banks and asset managers to dump debts rapidly, often for reasons that have little to do with economic fundamentals.”Kozul-Wright explains how governments cannot seek “the protection of bankruptcy laws to delay and restructure payments,” yet “their creditors cannot seize non-commercial public assets.” Governments and creditors must negotiate complex debt packages, and too often procrastinate. The UN General Assembly has adopted principles to guide sovereign debt restructuring, and Kozul-Wright urges more steps to ease unsustainable borrowing by governments. – YaleGlobal