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Legal innovations to encourage creditors to take part in restructurings and make it harder for holdouts to litigate have helped.In 2003 Uruguay restructured all its domestic and external debt, exchanging old bonds at par and at the same coupon rate for new ones but stretching maturity dates by five years.
Sheila Bair, chairman of the FDIC, among others, advocates taxpayer loss sharing to encourage creditors to reduce mortgage principal and interest.
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The United States has been encouraging creditors to assist Iraq by relieving part of its crushing debt.
The expense of attaching foreign assets will encourage most creditors to negotiate.
To admit that it was having such problems would only have encouraged other creditors to demand their money.
A meeting of euro-zone finance ministers on May 11th in Brussels was not expected to make much headway.The Greek government, led by Syriza, an anti-austerity party, has encouraged its creditors by sidelining the combative finance minister, Yanis Varoufakis.
Although Argentina has enough cash to pay the $1.4 billion at stake in the immediate matter, its leaders worry that the precedent could encourage countless other creditors — including many that already accepted lower-valued bonds in exchange for defaulted notes — to sue as well, demanding 100 cents on the dollar.
Regulators are also pushing them for a related reason: they should encourage a bank's creditors to provide more oversight.
"You want to plan now to encourage your future unknown creditors to negotiate a settlement for pennies on the dollar," Mr. Cain said.
The moves, which have been put in place to stop the flow of money from Greek banks and encourage the country's creditors to offer concessions before a bailout program expires tomorrow, saw the Asian stock market sink when trading opened this morning.
Policies that require government officials to provide subsidized emergency loans and implied guarantees of repayment to depositors and other bank creditors also encourage risk-taking.
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Justyna Jupowicz-Kozak
CEO of Professional Science Editing for Scientists @ prosciediting.com