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Monday, November 28, 2011

Is the IIF a Steering Committee?

One can only assume that the Institute of International Finance, Inc. has so far played the role of representing private creditors in the debt negotiations with Greece. Does that mean that the IIF is a so-called Steering Committee?

The IIF is the global association of financial institutions. Josef Ackermann, CEO of Deutsche Bank, is its Chairman of the Board. Charles H. Dallara is its Managing Director. Whether or not insurance companies and other holders of Greek debt are members of the IIF cannot be determined. With a degree of certainty one can say that not all holders of Greek debt are members.

Neither the IIF as an institution nor Mssrs. Ackermann or Dallara as individuals have mandates from all holders of Greek debt to negotiate on their behalf. On the contrary, members of the Management Board of Deutsche Bank have stated publicly that Mr. Ackermann doesn’t even have a mandate from his own bank to negotiate the Greek debt on behalf of the IIF.

So what is this actually? A self-appointed bunch of people who negotiate, without mandate, something which they afterwards inform their members of only to be surprised when their members don’t play ball? Or that other creditors who are not members of the IIF don’t play ball? Whatever the IIF is, a Steering Committee it is not!

A Steering Committee does not consist of managers/executives of bankers’ associations. A Steering Committee is appointed by all creditors of a borrower (whether they are banks or not) and it has a clear mandate from the creditors on behalf of which it negotiates. There are clearly established procedures for internal communication and/or decision-making. And, above all, the negotiations within a Steering Committee are private.

For a Steering Committee to be successful, its membership must balance out the interests of all Greece’s creditors. If, say, South American pension funds were large holders of Greek debt, their interests would have to be adequately reflected in the Steering Committee regardless of the fact that they are not members of the Eurozone nor Europeans.

A Steering Committee does not consist of CEOs who deal a top policy levels. Instead, it consists of professionals who understand the structural details of Greek debt and the various risk positions of individual investors. A Steering Committee does not have “carte blanche” for anything; it always requires eventual approval from the creditors which it represents. Should the Steering Committee be ready to agree with the borrower on something but the creditors subsequently object, then the Steering Committee has to return to the negotiations table.

The Steering Committee, since it is appointed by all creditors, can exercise significant pressure and thereby accelerate the decision-making process. Every creditor can declare his position and even make his demands. A good Steering Committee will deal with all such demands in an efficient manner leading to the result that, at the end of the day, there no longer are open issues. Once that is the case, the Steering Committee can rightfully demand of the creditors which appointed them and whose demands they have adequately addressed to quickly seek internal approvals within their institutions.

Behind the scenes, governments will, of course, informally liaise with the Steering Committee so that a general direction can be followed but under no circumstances should governments appear involved in the negotiations of private sector debt, much less feeling responsible for it.

End result: when a Steering Committee has secured approvals from all the creditors which it represents, it can commit to the borrower. And that is then a commitment which stands! Not a commitment which stands only as long no another party comes up with an objection.

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