Public debt management. What is public debt restructuring? Methods of managing external public debt
Characteristics of modern public debt
Problems of public debt management became relevant in the second half of the previous century, when states were unable to form budgets in sufficient sizes (in order to perform functions and implement debt policy). Modern government debt is the total amount of outstanding obligations in both the domestic and foreign markets. The main reasons for the emergence and increase of public debt are: the state budget deficit; implementation of fiscal policy aimed at reducing the tax burden without a corresponding reduction in government spending; factors influencing political business cycles associated with increased spending in the run-up to elections to gain popularity with voters; wars or militarization.
Types of government tax debt
Sources of repayment of public debt
Domestic public debt management is responsible for ensuring government solvency. In other words, it is a determination of the possibility of repaying debt obligations. This fact applies to both capital and current debt. Methods of managing public debt aimed at ensuring the solvency of domestic loans are based on the use of internal sources. At the same time, solvency on external debt primarily depends on foreign exchange earnings. Therefore, the possibility of repaying such debt is determined by the trade balance.
Government borrowings of the Russian Federation- loans carried out by issuing government securities on behalf of the Russian Federation, and loans attracted from other budgets of the budget system of the Russian Federation, credit organizations, foreign states, including targeted foreign loans (borrowings), international financial organizations, other subjects of international law, foreign legal entities persons for whom debt obligations of the Russian Federation arise.
State external borrowings of the Russian Federation mean government loans carried out by issuing government securities on behalf of the Russian Federation, and loans attracted from credit organizations, foreign states, including targeted foreign loans (borrowings), international financial organizations, other subjects of international law, foreign legal entities for which debt obligations of the Russian Federation arise, denominated in foreign currency.
State internal borrowings of the Russian Federation are government loans carried out by issuing government securities on behalf of the Russian Federation, and loans attracted from other budgets of the budget system of the Russian Federation, credit organizations and international financial organizations, for which debt obligations of the Russian Federation as a borrower arise, expressed in Russian currency.
State external borrowings of the Russian Federation are used.
to finance the federal budget deficit;
repayment of government debt obligations of the Russian Federation.
The right to carry out state external borrowings of the Russian Federation and conclude agreements on the provision of state guarantees to attract external credits (loans) belongs exclusively to the Russian Federation. On behalf of the Russian Federation, external borrowings can be carried out by the Government of the Russian Federation and the Ministry of Finance of the Russian Federation authorized by it.
State and municipal internal borrowings are used:
to finance the deficits of the relevant budgets;
repayment of debt obligations.
The right to carry out state internal borrowings on behalf of the Russian Federation belongs to the Government of the Russian Federation and the Ministry of Finance of the Russian Federation authorized by it.
Government borrowings of the constituent entities of the Russian Federation- these are loans carried out by issuing government securities on behalf of a constituent entity of the Russian Federation, and loans attracted to the budget of a constituent entity of the Russian Federation from other budgets of the budget system of the Russian Federation, credit organizations, foreign banks and international financial organizations, for which debt obligations of the constituent entity of the Russian Federation arise.
Municipal borrowings are loans carried out by issuing securities on behalf of the municipality, and loans attracted to the local budget from other budgets of the budget system of the Russian Federation and from credit institutions for which municipal debt obligations arise.
The right to carry out municipal borrowings on behalf of the municipality belongs to the local administration.
Debt restructuring is the termination of debt obligations constituting state or municipal debt based on an agreement, with the replacement of these debt obligations with other debt obligations providing for other conditions:
Debt restructuring can be carried out with a partial write-off (reduction) of the principal amount.
The amount of expenses for servicing the restructured debt is not included in the amount of expenses for servicing the debt obligation in the current financial year if the specified amount is included in the total volume of the restructured obligations.
Maximum volume of state, municipal debt and government borrowing
The maximum volume of borrowings by constituent entities of the Russian Federation and municipal borrowings in the current financial year should not exceed the amount allocated in the current financial year.
to finance the deficit of the relevant budget;
repayment of debt obligations of the corresponding budget.
The maximum volume of public debt of a constituent entity of the Russian Federation, municipal debt means the amount of debt of a constituent entity of the Russian Federation, municipal debt, which cannot be exceeded when executing the corresponding budget.
The maximum volume of public debt of a constituent entity of the Russian Federation, municipal debt for the next financial year (the next financial year and each year of the planning period) is established by the law (decision) on the corresponding budget within the limits established by the Budget Code.
The legislative (representative) body of state power of a constituent entity of the Russian Federation or the representative body of a municipal entity has the right, in order to manage the relevant debt, to approve additional restrictions on public debt.
The maximum volume of public debt of a constituent entity of the Russian Federation should not exceed the approved total annual volume of budget revenues of a constituent entity of the Russian Federation without taking into account the approved volume of gratuitous revenues.
The maximum amount of municipal debt should not exceed the approved total annual local budget revenues without taking into account:
the approved volume of gratuitous receipts;
and (or) tax revenues according to additional deduction standards.
Exceeding the established limits in the execution of the relevant budget is a violation of the budget legislation of the Russian Federation and entails the use of coercive measures.
If, during the execution of the corresponding budget, the volume of debt of a subject of the Russian Federation, municipal debt exceeds the maximum amount established by the law (decision) on the corresponding budget, the authorized government body of the subject of the Russian Federation, local government body has the right to accept new debt obligations only after bringing the volume of debt of the subject of the Russian Federation, municipal debt in accordance with legal requirements.
The law (decision) on the corresponding budget establishes the upper limit of the state internal (external - if any) debt of the constituent entity of the Russian Federation, municipal debt as of January 1 of the year following the next financial year, which is a calculated indicator, indicating, among other things, the upper limit debt under state guarantees of a constituent entity of the Russian Federation, municipal guarantees.
The definition of the concept of “debt restructuring” is established by law. According to the Budget Code, this term means the repayment of debt obligations with the simultaneous borrowing in the amount of repaid debts, and other conditions for servicing debt obligations and the terms of their repayment are established, clause 2 (Article 105).
This paragraph of Art. 105 was significantly changed by the Federal Law of the Russian Federation “On Amendments and Additions to the Budget Code of the Russian Federation”. In the new edition it looked like this:
“The restructuring of public debt is understood as an agreement-based termination of debt obligations constituting state or municipal debt, with the replacement of these debt obligations with other debt obligations that provide for other conditions for servicing and repaying obligations.”
The most important provision of this rule of law is that the restructuring of public debt is the termination of debt obligations based on an agreement. From a formal legal point of view, the text should probably be worded as follows: “repayment of debt obligations with simultaneous borrowing” to “termination of debt obligations”, since during restructuring, old obligations are terminated in favor of new, more profitable ones, the terms of the agreement, old ones, are changed debt obligations are repaid on new terms.
Point two was left unchanged:
“Debt restructuring can be carried out with a partial description (reduction) of the amount of the principal debt.”
In this text of the norm, it would probably be necessary to clarify how the write-off (reduction) of the amount of the principal debt is carried out: based on a general agreement or unilaterally.
The third paragraph of Article 105 of the Budget Code was also changed in 2000. Its new, currently valid version determined:
“The amount of servicing the restructured debt is not included in the amount of expenses for servicing the debt obligation in the current year if the specified amount is included in the total volume of the restructured obligations.”
The additions made have not changed the essence of this paragraph; it differs from the previous one only in the wording.
Restructuring can be carried out with partial write-off (reduction) of debt. The last provision of the code is somewhat vague, since it is unclear whether debt reduction is possible from the point of view of the legislator, at the will of the creditor, or whether this requires an agreement between the parties to the legal relationship.
Read also: How to pay off debt on a Sberbank credit card
The code contains a precise indication that unilateral “changes in the terms of a government loan issued for circulation, including payment terms and maturity, are not permitted.” But we are talking here only about loans; other forms of debt are not mentioned. At the same time, paragraph 4 of Article 817 of the Civil Code of the Russian Federation states that changes to the terms of a “issued loan” are prohibited. Probably, this position requires legislative clarification, since precise conclusions cannot be drawn from the text of the code.
The legislative framework regulating the restructuring of public debt is inadequate and does not meet the needs of legal regulation and effective management of public borrowings. The institution of debt restructuring exists and is inherently legitimate based on the specifics of such a participant as the state. This is due to the principle that the state cannot be declared “bankrupt”; its insolvency leads to debt restructuring, which, in essence, is an installment plan for debt repayment.
It is probably not necessary to rely on the same legal norm when talking about the restructuring of external and internal debt. The legislation adequately reflects provisions relating to internal and external debt separately.
On the eve of the adoption of the Budget Code, the Supreme Court of the Russian Federation, in connection with statements about declaring illegal the Decree of the President of the Russian Federation “On the organization of work on the redemption of certain types of government securities” dated August 7, 1998, expressed the following opinion: “Restructuring part of the internal debt is a power relationship, that is the unilateral will of the state, based on power and ensured by state coercion, carried out in the interests of protecting the state and the population.”
It is quite obvious that this definition, in principle, contradicts the meaning of the above-cited article. 105 of the current Budget Code as amended by the Federal Law on July 19, 2000.
However, for that moment it was adequate, because fully consistent with current legislation.
The Budget Code excludes such a position of the state. It is probably necessary to make a number of clarifications related to the specific parameters of the public debt of the Russian Federation.
Modern methods of external debt management used by countries and international financial organizations in world practice are divided into the following types:
o debt conversion;
o debt securitization;
o writing off part or all of the debt;
o debt restructuring.
Note that the first four methods can be combined in the restructuring process or used separately.
Debt conversion is the transformation of debt obligations that are not paying interest (or are over-debt-burdened) into new obligations that improve the borrower's current or long-term financial position. This operation does not lead to a change in the structure of liabilities or the receipt of new loans. According to its functional areas, conversion is divided into three types:
o conversion of debt into local currency (debt/equity, debt/debt, debt/development resources);
o direct exchange for assets (debt/unpaid debt claims, debt/financial restructuring);
o direct exchange for goods (debt/goods, debt/exports).
The exchange of liabilities for new non-trading assets is one of the modern methods of debt restructuring, and is most often used in developing countries. The classic scheme involves an exchange for securities that the parties can convert into financing projects in the field of environment, development, or cancel debt in exchange for certain legislative or political concessions.
The exchange of debt for shares of borrowing countries is divided into two categories:
1) an agreement between a private borrower and a private lender;
2) an agreement between a private lender and a public sector legal entity or the state as a borrower.
The advantage of this operation is the ability to turn a country's debt into equity by placing foreign direct or portfolio investment in a national enterprise. Thus, debt conversion serves the functions of debt management and investment promotion. The debtor partially pays the debt in local currency at a discount from the full cost, and the investor finances the investment at a favorable rate. The country benefits by converting part of its debt burden into new productive assets. The most significant conversion operations were carried out in Chile, Argentina, Brazil, Mexico, the Philippines, Venezuela, Nigeria, and Ecuador. Conversion provides an opportunity for the debtor country to reduce the volume or reduce the growth rate of external debt and attract foreign direct investment.
Converting debt into development resources. This method involves the use of two conversion schemes:
1) on the basis of debt redemption;
2) based on donations.
International charities or governments of developed countries purchase commercial debt at a discount on the secondary market. Sometimes banks transfer debt to international charities with the condition that the debt be repaid in local currency through an agreed environmental or social program. The following parties take part in the redemption or gratuitous transfer of debt: a commercial bank, an international charitable organization, and the government of the country. Often such a transaction involves a financial intermediary handling the debt. The disadvantages of this conversion scheme are the complexity and significant costs associated with a large number of participants and their different goals.
Debt-to-debt conversion is the conversion of existing debt obligations into new debt obligations. The status of the parties to the debt agreement may not change, and the terms of the new obligation may differ significantly from the terms of the previous obligation. The new note may have a reduced principal amount, different rates, or a different payment schedule. The form of debt obligations can be changed with a change in the debt instrument.
Conversion of debt into goods (export) provides that the debtor country offers repayment of obligations in the form of obtaining the right to sell the goods at a set price. A certain part of the sale amount is returned to the debtor, and the remaining part belongs to the creditor to pay off the debt. The disadvantage of this scheme is: the requirement for an advance payment of 2/3 of the cost of the goods, which is put forward by the debtor, before the sale of the goods. The positive consequences of applying this conversion scheme are: reducing external obligations, increasing export potential. Most often, the commodity debt repayment scheme is used as an opportunity to repay debt on a bilateral interstate basis,
Read also: Regulatory regulation of receivables and payables
Debt securitization is the issuance of new securities that represent ownership or obligations of the debtor. Such instruments are considered asset-backed securities. A debtor or creditor may securitize its debts or assets through an independent intermediary company that purchases the assets from the creditor. This method is one of the sources of debt financing in the United States. The most widespread is the securitization of debts to the Paris Club of creditors. The main instruments of securitization are foreign bonds issued by a non-resident in the domestic market of a foreign state, Eurobonds.
Debt repurchase or repurchase of debt is often carried out simultaneously with early payment of debt. Debt repurchase is carried out if the country has no difficulties in servicing the debt and has a good reputation among members of the Paris Club of creditors. Difficulties in applying this method are associated with the possible reluctance of each lender to provide the same level of discounts, the reluctance of creditors to help reduce repurchase debt, and the need to coordinate repurchase payments with the programs of the International Monetary Fund.
Restructuring of external debt - rescheduling of payments on external debt. This method may be accompanied by partial debt write-off and/or conversion into new debt instruments. Restructuring provides short-term relief to the debtor by increasing future payments at the expense of additional interest in the new repayment period. The following restructuring schemes may be applied: deferment of payments for several years, with the following grace periods, and then payments in full; supplementing existing agreements with new loans; converting interest debt into principal; exchange of part of the debt at the market rate for shares of state-owned enterprises.
There are the following "swap schemes" for restructuring external debt;
1) “external debt/bonds” - re-registration of existing public debt into new market debt instruments - securities;
2) “external debt-equity” - the exchange of debt for shares within the framework of the state privatization program. The investor company buys a debt instrument subject to conversion on the secondary market for its subsequent exchange at the central bank of the debtor country for local currency. The funds received are used for a clear purpose - making direct or portfolio investments. The exchange of debts for currency can occur both at par and at a discount, including at auctions where the winner is the one who offers the largest discount on the par value of the debt obligations that are exchanged. At the same time, the regulatory authorities of the debtor country can stimulate investment in priority areas through special quotas, preferences, and tax breaks. The peculiarity of this scheme is a change in the quality of the structure of investors’ assets: debt obligations are replaced with a fundamentally new financial instrument that does not provide for the provision of a fixed income to the investor. The advantages of this scheme: reduction of external debt, reduction of subsidies to state-owned enterprises, increase in the tax base in the future, promotion of exports, substitution of imports with domestic production. Disadvantages of this restructuring scheme: reduction in tax revenues to the state budget, inflation (the exchange of financial resources during large-scale operations under this scheme requires accompanying compensatory monetary transactions);
3) “external debt/domestic debt” - the central bank issues bonds denominated in local currency in exchange for external debt obligations. The disadvantage of this scheme is that the placement of government debt obligations on the domestic market creates competition for the corporate bond market, which limits the possibilities for the development of enterprises at the expense of raised financial resources;
4) “redemption of external debt.” This market debt restructuring scheme involves two implementation options:
o the state financial regulatory authority approaches the security holder with an offer to buy out the bonds owned by him at a fixed price, while trading in these securities is suspended for some time. Typically, this proposal accompanies an external debt/bond restructuring scheme;
o implementation of a similar first option of an operation of monetary authorities on the open market, when regulatory authorities, taking advantage of a favorable market situation, through certain structures buy bonds on the secondary market. At the same time, they can both actually make early repayments and use them in the future in order to obtain trading profits.
Restructuring of public debt is:
Restructuring of public debt
This term has other meanings, see Restructuring.
Restructuring of public debt- this is a revision of the terms of debt servicing (loan percentage, amount, repayment terms, etc.). In a general sense, restructuring is relevant when there is a threat of bankruptcy of the borrower, that is, his inability to repay debt obligations in accordance with the original terms of its provision.
The government's macroeconomic policy leads to the restructuring of public debt, according to which the government increases the amount of debt through loans from foreign countries, as a result of which the total amount of loans far exceeds the current account deficit. Borrowed funds are used to purchase foreign assets when they should have been used to finance national sectors. economy. This state monetary policy contributes to the outflow of private capital abroad.
Literature
- Part 1 Art. 127 of the Budget Code of the Russian Federation
Wikimedia Foundation. 2010.
See what “Restructuring of public debt” is in other dictionaries:
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Restructuring of public debt- this is a revision of the terms of debt servicing (loan percentage, amount, repayment terms, etc.). In a general sense, restructuring is relevant when there is a threat of bankruptcy of the borrower, that is, his inability to repay debt obligations in accordance with the original terms of its provision.
The government's macroeconomic policy leads to the restructuring of public debt, according to which the government increases the amount of debt through loans from foreign countries, as a result of which the total amount of loans far exceeds the current account deficit. Borrowed funds are used to purchase foreign assets when they should have been used to finance national sectors. economy. This state monetary policy contributes to the outflow of private capital abroad.
Literature
- Part 1 Art. 127 of the Budget Code of the Russian Federation
Wikimedia Foundation. 2010.
See what “Restructuring of public debt” is in other dictionaries:
Capital Restructuring of an enterprise Restructuring of public debt, see Structure ... Wikipedia
Debt restructuring- - a measure applied to borrowers who are in default, i.e., unable to service their debt. There are several restructuring measures that can be applied either individually or in combination: change... ... Banking Encyclopedia
DEBT RESTRUCTURING- (English debt restructuring) is one of the methods of managing public debt, using which the debtor seeks a revision of the original schedule for repayment and servicing of public debt. In accordance with the new schedule, the debtor... ... Financial and credit encyclopedic dictionary
Consolidation- (restructuring) of public debt, the transformation of short-term and medium-term public debt into long-term, i.e. transfer of upcoming payments to the distant future... Economics: glossary
The foreign policy of the Republic of Belarus is the totality of relations with other states and international structures. Contents 1 Basic principles, goals and objectives 2 Member ... Wikipedia
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The public debt management process is a set of actions related to the preparation for the issuance and placement of state debt obligations, regulation of the government securities market, servicing and repayment of public debt, provision of loans and guarantees.
Public debt management covers methods of both direct (institutional, technical, economic proper) and indirect regulation (impact on macro- or microeconomic levers of national economic management).
Public debt management in a broad sense refers to the formation of one of the directions of the state’s economic policy related to its activities as a borrower. This process includes: the formation of state debt policy; determination of the main directions and goals of impact on micro- and macroeconomic indicators; establishing the possibility and feasibility of financing national programs through public debt and other issues related to the strategic management of public debt; setting debt limits.
Debt management in the narrow sense is understood as a set of activities related to the issuance and placement of government debt obligations, servicing, repayment and refinancing of government debt, as well as regulation of the government securities market.
The process of managing public debt, both in a broad and narrow sense, requires a systematic approach from the state and determines the multifaceted nature of regulating existing debt. In turn, systematic debt management is impossible without a clear classification of debt.
Servicing public debt is associated with the redistribution of income in the country. To pay off the debt, you can use the assets available to the state by privatizing state property. Another approach is associated with increasing budget revenues by expanding the tax base. The burden of maintenance is shifted to taxpayers. Another source of debt repayment could be loans from the Central Bank. However, in the context of the country's main bank being independent from the government, it is very difficult to use emissions to reduce debt. Servicing external debt actually means the legal export of capital, which is reflected as a separate line in the balance of payments, that is, it leads to the redistribution of part of the national income through the fiscal and monetary system in the interests of non-residents.
Financing the budget deficit from domestic sources also does not always contribute to the development of the national economy. An increase in domestic debt means an increase in the share of government borrowing in the financial market. This could lead to competition for resources in the domestic financial market, rising interest rates and reducing capitalization of the private securities market. In addition, investments are reduced, since investment projects with a profitability that does not exceed the interest paid on government securities along with the risk premium will remain unrealized.
The mechanism for regulating public debt in market conditions is united by the concept of “restructuring”. For the purposes of this Code, debt restructuring means an agreement-based termination of debt obligations constituting state or municipal debt, with the replacement of these debt obligations with other debt obligations providing for other conditions for servicing and repaying obligations.
Debt restructuring is carried out using various tools: refinancing, conversion, debt repurchase, consolidation, unification, cancellation of public debt, securitization.
Refinancing is one of the main methods of paying off debt. Refinancing is the repayment of old debt (and interest on it) by issuing a new loan and accepting new obligations. Three methods of refinancing public debt are used: replacing obligations (with the consent of their holders) with expired repayment terms with new ones, equivalent in amount to those being repaid; early replacement of some obligations with others with longer repayment periods; placement (sale) of new bonds and, using the proceeds, repayment of expired bonds. Another way is debt redemption. In cases where debtor states may have significant amounts of financial reserves, it is possible to allow the borrower to purchase its own debts, thereby reducing the overall amount of public debt. However, world practice has a negative attitude towards early repurchase of debts. This is due to the fact that the benefits from this go to, firstly, the worst borrowers, whose debts are traded at the greatest discount, and, secondly, the principle of equality of creditors is violated.
The next method is conversion. Debt conversion is the transformation of non-interest bearing debt (or overburdening debt obligations) into new obligations that improve the borrower's condition either financially or prospectively. Technically, such transactions do not lead to a change in the structure of existing liabilities or to the receipt of new loans.
Another way is debt redemption. In cases where debtor states may have significant amounts of financial reserves, it is possible to allow the borrower to purchase its own debts, thereby reducing the overall amount of public debt. However, world practice has a negative attitude towards early repurchase of debts. This is due to the fact that the benefits from this go to, firstly, the worst borrowers, whose debts are traded at the greatest discount, and, secondly, the principle of equality of creditors is violated.
Consolidation is a change in the validity period of already issued loans towards an increase (usually) or a decrease. It involves easing the terms of debt repayment in the form of deferred payments and repayments. It is possible to combine consolidation with conversion.
Unification is the combination of several loans into one, when bonds of previously issued loans are exchanged for bonds of a new loan. The goal is to reduce the number of types of securities in circulation at the same time, which simplifies work and reduces government expenses for debt servicing. The unification of government loans is usually carried out together with consolidation, but can also be carried out outside of it.
Cancellation of public debt means a complete renunciation of the state's debt. However, this option is considered unacceptable. The authority of the state depends on its recognition of its debts and ensuring their full repayment on time.
Debt securitization is the conversion of government debt into new marketable money market debt instruments, including loan capital. Among the main types of securities traded on international financial markets, two groups are distinguished: foreign bonds - issued by non-residents in the domestic market of a foreign state, and Eurobonds - medium- and long-term obligations in Eurocurrencies, issued on the European market among foreign investors.
Thus, among the problems of modern budget policy, the problem of public debt occupies a special place. It is one of the main problems of the Russian economy, having a direct impact both on the rate of economic growth of the country as a whole, and on the directions of financial and budget policy.
The goal of debt management is to find the optimal balance between the state's needs for additional financial resources and the costs of attracting, servicing and repaying them. In addition, the purpose of managing public debt is to develop an economically sound relationship between the state’s needs for additional financial resources and the costs of attracting them, and to maintain the volume of debt at an economically safe level.
Therefore, the public debt management system should be focused on servicing strategic investment projects, and the state should act as a coordinator and guarantor of productive investments within the framework of the developed economic growth strategy.
Management of external public debt is a set of state measures regulated by legal norms for the use of debt relations aimed at repaying debt obligations and creating favorable socio-economic conditions for the country's development, one of the directions of the country's financial and budgetary policy related to the activities of the state in external financial markets in as an economic entity-borrower and guarantor. It involves attracting financial resources by placing securities or other sources, repaying and servicing debt obligations.
The most important measures for managing external public debt include establishing maximum amounts of public external debt; sources of internal financing of the budget deficit, including proceeds from the issue of government securities; expenses for servicing external public debt; upper limits of state external guarantees. Excessive growth of external public debt poses a threat to the economic security of the country and the stability of the budgetary system.
Information on debt obligations of the Russian Federation is entered into the State Debt Book of the Federation within three days from the moment the obligation arises. The composition, procedure and deadlines for submitting information are established by the Government of the Russian Federation. The state debt book of a constituent entity of the Federation contains information about the volume of its debt obligations (including guarantees) for all government borrowings, the date of borrowing, forms of securing obligations, and fulfillment of obligations in whole or in part. The state municipal debt book includes information on the volume of debt obligations of municipalities (including guarantees).
Policy regarding public debt and its upper limit are determined by the legislative authorities, and it is operationally managed by the executive branch.
The mechanism for regulating public debt in market conditions is united by the concept of “restructuring,” i.e., agreement-based termination of debt obligations that constitute public debt, replacing them with debt obligations that provide for other conditions of servicing and repayment. Restructuring does not remove the debt problem, but only postpones it to a later date. Consequently, the burden of repayment falls on the next generations, the total amount of payments increases further due to additional interest accrued.
During the ongoing restructuring of debt obligations, a limited set of methods is used: refinancing, conversion, consolidation, unification, cancellation of public debt.
Refinancing is the repayment of old debt (and interest on it) by issuing a new loan and accepting new obligations. There are three ways to refinance government debt:
1. Replacement of obligations (with the consent of their holders) with expired repayment periods with new ones, equivalent in amount to those being repaid; early replacement of some obligations with others with longer repayment periods; placement (sale) of new bonds and, using the proceeds, repayment of expired bonds.
2. Debt redemption. In cases where debtor states may have significant amounts of financial reserves, it is possible to allow the borrower to independently repurchase its own debts, which can reduce the overall amount of public debt. However, world practice has a negative attitude towards early repurchase of debts. This is due to the fact that the benefits from this go to, firstly, the worst borrowers, whose debts are traded at the greatest discount, and, secondly, the principle of equality of creditors is violated.
3. Securitization of debt - re-registration of government internal debt into new market debt instruments of the money market, including loan capital. Among the main types of securities traded on international financial markets, two groups are distinguished: foreign bonds issued by non-residents in the domestic market of a foreign state, and Eurobonds - medium- and long-term obligations in Eurocurrencies, issued on the European market among foreign investors.
By the beginning of the 1990s. In international practice, a fairly effective system for restructuring external debt has developed, proposed for the settlement of debt obligations of developing countries by US Treasury Secretary N. Brady - the “Brady Plan”. At that time, the securities markets of developing countries were characterized by very low liquidity - 25-40% of the nominal value. As a result of negotiations between debtors and creditors in 1990-1994. Brady bonds were issued for a total amount of about $100 billion. They are government bonds issued in exchange for government debt to commercial banks. In international practice, the following types of Brady bonds are used: parity (with reduced interest); discount (with a reduced principal amount of debt); stepped (with lower initial rates); debt conversion (new loans), new debt; interest; capitalized.
Administrative methods include conversion, consolidation, unification, deferment of repayment, novation, debt cancellation.
Conversion is a change in the profitability of loans in the interests of the debtor by lowering the interest rate, using a different method of repaying the debt in order to reduce the borrower’s expenses for repaying and servicing the public debt. The most common type is the exchange for new debt obligations. Technically, such transactions do not lead to a change in the structure of existing liabilities or to the receipt of new loans.
Consolidation is a change in the validity period of already placed loans towards increase or decrease. Loan prolongation has the goal of facilitating debt repayment and involves increasing the maturity of issued loans by transferring current liabilities and short-term loans into long-term ones. As a rule, it is of a compulsory nature and is carried out by adding interest coupons to bonds of old loans, the validity of which is being extended, or by replacing bonds of old loans with bonds of a new loan. Often consolidation (usually prolongation) is combined with conversion.
Unification of loans is the combination of several loans into one, when bonds of previously issued loans are exchanged for bonds of a new loan. It can be carried out with or without consolidation and conversion.
Deferment of loan repayment is that, as with consolidation, the loan repayment period is unilaterally postponed and, in addition, the payment of income is stopped.
Novation is an agreement between the borrower state and creditors to replace obligations under the same loan agreement.
Cancellation of public debt is the refusal of the state from all obligations. This is a non-market measure to solve the state's debt problem. This form of public debt management is used when there is a change in government or when a state declares itself bankrupt.
These forms of public debt management apply to both domestic and external debt.
External debt management at the stage of attracting external loans in Russia is carried out by establishing maximum amounts of external debt and government guarantees in the budget law for the corresponding financial year.
Management of the use of external debt is carried out in three forms:
Financial placement - financing of investment projects and economic development (this is the most effective way of placing external debt);
Budgetary use - financing current budget expenditures and the state budget deficit, including servicing external debt;
Mixed fiscal and financial placement.
Managing the repayment of external debt involves the use of various sources of its repayment: budget funds, gold and foreign exchange reserves, new borrowings, converting debt into shares of enterprises.
The public debt management system should have two modes of operation:
Management in the normal mode of the reproductive process;
Crisis management in the context of an aggravating budget deficit, a decline in production, and a reduction in the ability to attract new borrowings.
The watershed between these regimes lies in the assessment of the key components of government borrowing: the accumulation of public debt, the payment system, trends in new borrowings.
Public debt is a complex economic and financial entity, a special financial mechanism that requires the use of a system of methods to regulate it. The key ones include:
Stabilization instruments in public debt, managing debt dynamics;
Reducing government external debt;
Restructuring of the country's external debt;
Reducing the cost of servicing public debt.
The main method of managing public debt is optimization
government borrowing. This approach goes beyond the concept of “regulatory method”, representing practically a program for optimizing borrowing, within the framework of which maneuvering of internal and external loans is carried out.
The optimization approach concerns both the formation of debt and its servicing, including the following measures: ensuring the equivalence of changes in current debts and future taxes; maintaining a balance in emission activities and tax collection with the process of increasing debt and the size of its servicing; implementation of a debt stabilization policy in conjunction with the investment process; taking measures to transform the debt growth policy into a restrictive policy that stabilizes debt growth.
Bibliography
1. Alekhin, E.V. State and municipal finance: textbook / E.V. Alekhin. - Penza, 2010. - 350 p.
2. Kangro, M. V. State and municipal finance: textbook. allowance / M. V. Kangro. - Ulyanovsk: Ulyanovsk State Technical University, 2010. - 152 p.
3. Polyak, G. B. State and municipal finance: textbook. allowance / G. B. Polyak. - 3rd ed., revised. and additional - M.: UNITY-DANA, 2008. - 375 p.
4. Troshin, A. N. Finance and credit: textbook / A. N. Troshin, T. Yu. Mazurina, V. I. Fomkina. - M.: INFRA-M, 2009. - 408 p.
