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We just published a new blog—please find the full text below. Translations coming soon. Time is Ripe for Innovation in the World of Sovereign Debt Restructuring By Peter Breuer and Charles Cohen When corporations have too much debt and need to restructure it, creditors often end up exchanging bonds or loans for stocks. They trade the guaranteed payout of a fixed-income investment for an equity position whose return depends on the company’s future results. In other words, investors accept to share risk. Could a similar mechanism be applied when a sovereign nation has to restructure its debt, tying payouts to its future economic performance? New IMF research looks at possible innovative sovereign debt instruments that could do both: help creditors and debtors reach agreement on how to restructure debt by sharing some upside potential, and make a country’s debt portfolio more resilient to future shocks. COVID-19’s huge economic shock finds about half of low-income countries and several emerging markets already in or at high risk of a debt crisis. And sovereign debt levels are expected to rise, by about 17 percent of GDP in advanced economies; 12 percent in emerging markets; and 8 percent in low-income countries, compared to pre-pandemic expectations. The COVID-19 crisis has also ushered in a period of great macroeconomic uncertainty. In this situation, the prospects for a sovereign’s ongoing ability to service its debt are more uncertain than at any other juncture, potentially making creditors less willing to accept a permanently diminished claim. Prolonged negotiations, lack of market access and high uncertainty during a restructuring can deprive nations of desperately needed funds for an extended period, reducing priority spending and investments required to grow the economy and allow the country to service its debts. In trying to avoid this downward spiral, some governments may be tempted to accept unfavorable restructuring terms that end up triggering the same problems again in a short space of time. Contingency plan The pandemic might be the force that catalyzes long overdue innovation in the sovereign debt market. This could facilitate less protracted and simpler restructurings, and help avoid them in the future. Debt instruments that adjust payouts to creditors according to (or “contingent on”) the sovereign’s future health—measured by GDP, exports, or commodity prices—could help break this negative cycle. In an economic slowdown, these “state-contingent debt instruments” would maintain debt relief that a country obtained in a restructuring. In an upswing, they would automatically provide additional compensation to creditors as the country’s ability to pay improves. This commitment may allow the country to reach agreement on a larger cut of its debt burden upfront and make it more sustainable going forward, particularly as it regains quicker market access. Further designing a symmetric instrument offering larger relief in a downside scenario could permit agreement to be reached around a more favorable baseline, providing value recovery for investors and downside protection to the country. Implementation challenges Despite the appeal of state-contingent debt instruments in these uncertain times, longstanding implementation difficulties remain and their design needs to incorporate lessons from experience. Creditors have historically discounted these instruments given their untested nature, idiosyncratic risk profiles, and resultant lack of trading liquidity. Such concerns can be addressed by tying state variables, such as GDP growth or commodity prices, closely to the debtors’ repayment capacity and ensuring that the measurement of state variables is shielded from data manipulation. Wider usage and standardization of terms would allow investors to understand state-contingent contracts better, provide better price formation and foster trading in the secondary market. To address borrowers’ concerns, the payout formula should be transparent and provide countercyclical relief, while also capping excessive payouts. Hurricane insurance Restructurings can also enhance a country’s debt portfolio resilience by including insurance-like clauses that provide relief when shocks—such as hurricanes or other natural disasters—strike. Lenders have been willing to provide hurricane insurance to some Caribbean countries in the form of interest forbearance and maturity extension. Such clauses enhance a country’s repayment capacity at the time of crisis, benefitting both sides. A restructuring offers a unique chance to exchange the entire debt stock for new securities with these mechanisms, keeping all creditors on equal footing. An even more ambitious goal would be the development of instruments that could prompt automatic debt standstills in a global crisis (like the current pandemic), helping developing countries cope with an unexpectedly large shock. However, defining an appropriate triggering event remains difficult. One possibility is to link future private sector debt standstills to official sector standstills, as this would serve as an appropriately strong indication of the severity of the crisis. State contingent debt instruments can be useful in certain situations. But they are no panacea for the inherent challenges of a sovereign debt restructuring. Other comprehensive reforms are needed, as detailed in other recent research on strengthening debt architecture. Optimizing their design in light of past experience may allow contingent instruments to play an important role in facilitating speedier and less costly debt restructurings, while making countries more resilient against future shocks. Now is the time to tackle this challenge. Peter Breuer is chief of the IMF's Debt Capital Markets Division, Monetary and Capital Market Department. Charles Cohen is deputy chief in IMF's the Debt Capital Markets division of the Monetary and Capital Market Departments.
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The Prime Minister, Justin Trudeau, today issued the following statement on National Child Day:
“On National Child Day, we celebrate our greatest asset: our children and young people. We also highlight their rights and recognize that each of us has a role to play to ensure all children are always treated with dignity and respect, and have the love and support they need to thrive in life.
“Every child deserves the opportunity to succeed and reach their full potential. That is why the Government of Canada is helping families with the Canada Child Benefit. Every month, this revolutionary social measure ensures that more children can succeed and achieve their dreams. Since its introduction, this benefit has significantly helped to reduce child poverty and put more money in the pockets of about nine out of ten Canadian families. It is also one of the government’s important initiatives that have helped lift more than one million Canadians out of poverty since 2015.
“We also know that child care needs to be more accessible, affordable, inclusive, and high quality. That’s why we have provided significant support to this sector over the past few years. This year alone, we have invested more than $1 billion – the largest investment ever made by the Government of Canada – in early learning and child care. In addition, as committed in the Speech from the Throne, we will make a significant, long-term, sustained investment to create a Canada-wide early learning and child care system.
“We have made a lot of progress over the past few years, but we know there is still work to be done to ensure that all children and youth can learn and thrive in a safe and healthy way. The Government of Canada, with Indigenous partners, co-developed the Act respecting First Nations, Inuit and Métis children, youth and families to reform child and family services. It also contributes to Indigenous children staying with their families and in their communities. In addition, the Act establishes national principles including the best interests of the child, cultural continuity, and substantive equality.
“Due to the global COVID-19 pandemic, the past year has been different and difficult. Children and youth have needed to give up their extracurricular activities, distance from their friends, and adapt to online learning. Some are worried about their future, and that's okay. It hasn’t been easy, but we recognize the significant efforts and sacrifices our children have made to help support their parents, and to protect their grandparents and our front line workers.
“The Government of Canada has been, and will always be, there for them. By providing funding to Kids Help Phone, we have supported children and youth with mental health supports. In addition, to help families deal with the impacts of COVID-19, we provided additional support of up to $300 per child for families already receiving the Canada Child Benefit. And, through an investment under the Safe Return to Class Fund, we supported the provinces and territories to ensure the safety of students, and to contribute to their development and success.
“Sophie and I invite all Canadians to join us in celebrating National Child Day. Our children and youth are the leaders of today and tomorrow. Together, we can build a more resilient Canada and a better future for everyone.”
Le 20 novembre 2020
Ottawa (Ontario)
Le premier ministre Justin Trudeau a fait aujourd’hui la déclaration suivante à l’occasion de la Journée nationale de l’enfant :
« En cette Journée nationale de l’enfant, nous célébrons notre plus grande richesse : nos enfants et nos jeunes. Nous soulignons aussi leurs droits et reconnaissons qu’il revient à chacun d’entre nous de veiller à ce que tous les enfants aient l’amour et le soutien dont ils ont besoin pour s’épanouir dans la vie et qu’ils soient toujours traités avec dignité et respect.
« Chaque enfant mérite d’avoir toutes les chances possibles de réussir et d’atteindre son plein potentiel. Voilà pourquoi le gouvernement du Canada aide les familles avec l'Allocation canadienne pour enfants. Chaque mois, cette mesure sociale révolutionnaire fait en sorte qu’un plus grand nombre d’enfants puissent réussir et réaliser leurs rêves. Depuis sa mise en place, cette allocation a largement contribué à réduire la pauvreté chez les enfants et a mis plus d’argent dans les poches d’environ 9 familles canadiennes sur 10. Elle est aussi l’une des importantes initiatives du gouvernement qui ont aidé à sortir plus d’un million de Canadiens de la pauvreté depuis 2015.
« Nous sommes également convaincus que les services de garde d’enfants devraient être plus accessibles, plus abordables, plus inclusifs et de meilleure qualité. Nous avons donc soutenu significativement ce secteur au cours des dernières années. Par exemple, cette année seulement, nous avons investi plus d’un milliard de dollars, soit le plus grand investissement jamais fait par le gouvernement du Canada, dans l’apprentissage et la garde des jeunes enfants. De plus, comme nous l’avons promis dans le discours du Trône, nous allons réaliser un investissement important, soutenu et à long terme dans la mise en place d’un système d’apprentissage et de garde des jeunes enfants à l’échelle du Canada.
« Au cours des dernières années, nous avons fait beaucoup de progrès. Mais, nous savons qu’il reste encore du travail à faire pour veiller à ce que tous les enfants et les jeunes puissent apprendre et s’épanouir en santé et en sécurité. Le gouvernement du Canada a élaboré la Loi concernant les enfants, les jeunes et les familles des Premières Nations, des Inuits et des Métis conjointement avec ses partenaires autochtones. Celle-ci vise à réformer les services à l'enfance et à la famille. Elle contribue également à ce que les enfants autochtones restent auprès de leurs familles et de leurs communautés et établit des principes nationaux tels que l'intérêt supérieur de l'enfant, la continuité culturelle et l'égalité réelle.
« Nous savons tous que la dernière année a été différente et difficile en raison de la pandémie mondiale de COVID-19. Les enfants et les jeunes ont dû sacrifier leurs activités parascolaires, ont été éloignés de leurs amis et ont dû s’adapter à l’apprentissage en ligne. Certains s’inquiètent pour leur avenir et c’est tout à fait normal. Ça n’a pas été facile, mais nous reconnaissons les importants efforts et sacrifices de nos enfants pour contribuer à aider leurs parents et à protéger leurs grands-parents et nos travailleurs de première ligne.
« Le gouvernement du Canada a été et sera toujours là pour eux. En fournissant du financement à Jeunesse, J’écoute, nous avons offert aux enfants et aux jeunes du soutien en matière de santé mentale. De plus, afin de donner un coup de pouce aux familles pour faire face aux impacts de la COVID-19, nous avons remis un montant supplémentaire de jusqu’à 300 dollars par enfant aux familles déjà admissibles à l'Allocation canadienne pour enfants. Puis, grâce à un investissement dans le cadre du Fonds pour une rentrée scolaire sécuritaire, nous avons soutenu les provinces et les territoires pour assurer la sécurité des élèves et contribuer à leur développement et à leur réussite.
« Sophie et moi invitons tous les Canadiens à se joindre à nous pour célébrer la Journée nationale de l’enfant. Nos enfants et nos jeunes sont les leaders d’aujourd’hui et de demain. Ensemble, nous pouvons bâtir un Canada plus résilient et un avenir meilleur pour tous. »
November 19, 2020
Ottawa, Ontario
Today, Prime Minister Justin Trudeau participated in a COVID-19 briefing with Opposition leaders, led by Chief Public Health Officer of Canada Dr. Theresa Tam and Deputy Chief Public Health Officer of Canada Dr. Howard Njoo.
Dr. Tam and Dr. Njoo provided an update on the spread of COVID-19 in Canada. The doctors highlighted the latest modelling data and projections, which they will release tomorrow, and answered questions from Opposition leaders. They noted that Canada is facing a continued rise in cases and that it is critical for Canadians to keep following all public health measures, including physical distancing, proper handwashing, and limiting close contacts. The doctors and the Opposition leaders also discussed vaccines, long-term care, schools, rapid testing, travel between provinces and territories, as well as international factors affecting Canada.
The Prime Minister emphasized that the health and safety of all Canadians transcends political interests, and every party must work together to protect Canadians from COVID-19.
The Prime Minister reaffirmed that the Government of Canada is committed to continuing to work with provinces, territories, municipalities, and Indigenous communities, as well as all parliamentarians, to respond to the pandemic and keep Canadians safe and healthy.
Aujourd'hui, le premier ministre Justin Trudeau et les chefs de l'opposition ont participé à une séance d'information sur la COVID-19 dirigée par l'administratrice en chef de la santé publique du Canada, la Dre Theresa Tam, et l'administrateur en chef adjoint de la santé publique du Canada, le Dr Howard Njoo.
La Dre Tam et le Dr Njoo ont fait le point sur la propagation de la COVID-19 au Canada. Les docteurs ont mis en relief les dernières données et projections de modélisation, qu'ils publieront demain, et ont répondu aux questions des chefs de l'opposition. Ils ont noté que le Canada est confronté à une augmentation continue du nombre de cas et qu'il est essentiel que les Canadiens continuent de suivre toutes les mesures de santé publique, c’est-à-dire pratiquer la distanciation physique, bien se laver les mains et limiter les contacts étroits. Les docteurs et les chefs de l'opposition ont également discuté des vaccins, des soins de longue durée, des écoles, des tests de dépistage rapide, des déplacements entre les provinces et les territoires ainsi que des facteurs internationaux qui touchent le Canada.
Le premier ministre a souligné que la santé et la sécurité de tous les Canadiens transcendent les intérêts politiques, et que tous les partis doivent travailler ensemble pour protéger les Canadiens contre la COVID-19.
Le premier ministre a réaffirmé l’engagement du gouvernement du Canada à continuer de travailler avec les provinces, les territoires, les municipalités et les communautés autochtones, ainsi qu'avec tous les parlementaires, pour faire face à la pandémie et assurer la santé et la sécurité des Canadiens.
Today, Prime Minister Justin Trudeau spoke with Nunavut Premier Joe Savikataaq about the COVID-19 pandemic.
Prime Minister Trudeau reached out to Premier Savikataaq to discuss the rising number of COVID-19 cases in Nunavut and the territory-wide lockdown which is now in effect. Prime Minister Trudeau reiterated his commitment to helping Nunavut and all territories and provinces respond to the global COVID-19 pandemic and ensure economic recovery.
Prime Minister Trudeau and Premier Savikataaq discussed current federal support, notably through testing and personal protective equipment, and additional support which the federal government could provide to respond to Nunavut’s needs.
The Prime Minister and the Premier agreed on the importance of continuing to work together to quickly address the situation in the territory, and to protect the health and safety of Nunavummiut and all Canadians.
Aujourd'hui, le premier ministre Justin Trudeau s'est entretenu avec le premier ministre du Nunavut, Joe Savikataaq, au sujet de la pandémie de COVID-19.
Le premier ministre Trudeau a appelé le premier ministre Savikataaq pour discuter du nombre croissant de cas de COVID-19 au Nunavut et de la période de confinement qui a commencé aujourd’hui à l’échelle du territoire. Le premier ministre Trudeau a réitéré son engagement à aider le Nunavut et l’ensemble des territoires et des provinces à faire face à la pandémie mondiale de COVID-19 et à assurer la relance économique.
Le premier ministre Trudeau et le premier ministre Savikataaq ont discuté du soutien fédéral que reçoit le territoire à l’heure actuelle, notamment sous la forme de tests et d'équipement de protection individuelle, ainsi que du soutien supplémentaire que pourrait apporter le gouvernement fédéral pour répondre aux besoins du Nunavut.
Les premiers ministres ont convenu de l'importance de poursuivre leur collaboration pour remédier rapidement à la situation dans le territoire et pour protéger la santé et la sécurité des Nunavummiuts et de l’ensemble des Canadiens.