Reports that Greece used derivatives contracts with U.S. investment banks to mask the size of its debt highlight the need for guidelines defining the legitimacy of sovereign debt, a U.N. official said on Monday.
Yuefen Li, head of the Debt and Development Finance Branch at the United Nations Conference on Trade and Development (UNCTAD), said the reports that the previous Greek government had pledged future revenue streams raised questions of transparency.
Li heads a project to draw up international guidelines on whether sovereign debt is legitimate.
She told Reuters it was not possible to say whether the Greek transactions could be declared illegitimate under the future guidelines without knowing the full details of the deals and how they were handled under Greek law.
"Whether or not it can be declared illegitimate, you have to look at the legal aspects — whether the government has gone through transparency, (whether) you inform your people, (whether) you go through the legal procedures, whether it's for the benefit of the people," Li said.
But she said pledging future income to meet current needs raised ethical problems, comparable with irresponsible economic growth that created long-lasting pollution.
"You cannot use the revenue for future generations to solve your immediate problems," she said.
Li said Greece was not the only country to engage in these kinds of transactions, but declined to name others.
The Greek case raised the question whether governments had the right to impose debt burdens on future generations that would have to be repaid when they were no longer in office, she said.
It also showed that the planned guidelines were relevant to all states, and not only highly-indebted developing countries.
According to the New York Times, one contract in 2001 — carried out as Greece was joining the European monetary union — involved Greece selling forward future lottery receipts and airport landing fees in exchange for cash to write down debt.
The deal was structured to appear as a currency trade rather than a loan, allowing Greece to hide it from public view while meeting deficit limits on joining the single currency, the newspaper reported. The EU has asked Greece to explain.
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