Newsroom: Article

Emerging Market De(bt)velopments

In early 2006, the government of President Ellen Johnson Sirleaf assumed office in the Republic of Liberia. She inherited a country with a broken economy and basic infrastructure.
Since then, the country has recovered significantly. An important part of the economic reform of the country was to start the process of restructuring its external debt so that the Liberian government could invest in the development of the economy. The country reached its ‘Decision Point’ under the enhanced initiative for the Heavily Indebted Poor Countries (enhanced HIPC Initiative) in March 2008 and Paris Club creditors agreed on 17 April 2008 to a restructuring of Liberia’s external public debt.
Liberia’s external debt – before any debt cancellation has been applied – is estimated at around $4.5bn. Approximately $1.5bn consists of commercial debt and about $1.6bn consists of multilateral debt. The stock of debt owed to Paris Club creditors (as of 1 January 2008) is estimated to be more than $1.5bn in nominal terms, of which more than 97% consisted of arrears and late interest.
This agreement consolidates around $1.043bn, of which $1.028bn comprises arrears and late interest. It cancels a total of $254m and reschedules around $789m. These rescheduled amounts will be addressed for debt relief when Liberia reaches ‘Completion Point’.
No payments are expected from Liberia prior to when it is expected to reach Completion Point, namely 1 January 2011. The International Monetary Fund (IMF) and the World Bank currently assume that the Paris Club will then have delivered total debt relief of approximately $1.3bn in net present value terms. Several creditors intend on a bilateral basis to grant additional debt relief to Liberia beyond the terms set in the Paris Club agreement, leading to a near 100% debt cancellation from the Paris Club creditors.
Liberia is also committed to seek comparable treatment from non-Paris-Club creditors. Currently, Liberia is in negotiation with London Club and other private creditors to arrange a debt-buy-back transaction. Any such buy-back transaction will be based on the common reduction factor as defined by the HIPC documents, which leads to a 97% cancellation in net present value terms.
After completion of the Paris Club agreement and a London Club transaction, Liberia will have managed to restructure its public debt in record time and against record discounts.
We advise holders of Liberian debts to contact us for advice on any questions relating to (potential) defaults or the possibility of trading out of risk positions.

A. Thiescheffer on thiescheffer@omnibridgeway.com
R. van Hulst on vanhulst@omnibridgeway.com
H. Rijkens on rijkens@omnibridgeway.com

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